-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SAt103QC1YgeXON91Uxsp3Bw296lviWn5mY0VV5bC0hd8puufv1sXcbn+AuUugcl lDHrrqgjgxFvzYblgvhDwA== 0000889812-96-001294.txt : 19960916 0000889812-96-001294.hdr.sgml : 19960916 ACCESSION NUMBER: 0000889812-96-001294 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960731 FILED AS OF DATE: 19960913 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTH MANAGEMENT SYSTEMS INC CENTRAL INDEX KEY: 0000861179 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 132770433 STATE OF INCORPORATION: NY FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20946 FILM NUMBER: 96630111 BUSINESS ADDRESS: STREET 1: 401 PARK AVE SOUTH CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 2126854545 MAIL ADDRESS: STREET 1: 401 PARK AVENUE SOUTH CITY: NEW YORK STATE: NY ZIP: 10016 10-Q 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 0-20946 Health Management Systems, Inc. (Exact name of registrant as specified in its charter) New York 13-2770433 State of Incorporation (I.R.S. Employer Identification Number) 401 Park Avenue South, New York, New York 10016 (Address of principal executive offices, zip code) (212) 685-4545 (Registrant's telephone number, including area code) Not Applicable (Former name, former address, and former fiscal year, if changed since last report.) Indicate by check x/ whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x/ No __ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at August 31, 1996 ----- ------------------------------ Common Stock, $.01 Par Value 17,312,802 Shares HEALTH MANAGEMENT SYSTEMS, INC. INDEX TO FORM 10-Q QUARTER ENDED JULY 31, 1996 PART I FINANCIAL INFORMATION Page No. Item 1 Financial Statements Consolidated Balance Sheets as of July 31, 1996 (unaudited) 1 and October 31, 1995 Consolidated Statements of Operations (unaudited) for the 2 three month and nine month periods ended July 31, 1996 and July 31, 1995 Consolidated Statement of Shareholders' Equity (unaudited) 3 for the nine month period ended July 31, 1996 Consolidated Statements of Cash Flows (unaudited) for the 4 three month and nine month periods ended July 31, 1996 and July 31, 1995 Notes to Interim Consolidated Financial Statements (unaudited) 5 Item 2 Management's Discussion and Analysis of Results of Operations 6 and Financial Condition PART II OTHER INFORMATION 11 SIGNATURES 12 EXHIBIT INDEX 13 HEALTH MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ($ In Thousands, Except Per Share Amounts) July 31, October 31, 1996 1995 ----------- ----------- (Unaudited) Assets Current assets: Cash and cash equivalents $ 12,013 10,801 Short-term investments 18,041 19,287 Accounts receivable, net: Trade 47,400 31,517 Affiliates 105 113 -------- ------ 47,505 31,630 Other current assets 9,546 4,328 -------- ------ Total current assets 87,105 66,046 Property and equipment, net 7,257 5,874 Intangible assets, net 5,300 5,461 Capitalized software costs, net 1,324 865 Investments in affiliates 6,963 7,673 Other assets 844 1,465 -------- ------ Total assets $108,793 87,384 ======== ====== Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued expenses $ 18,300 14,842 Amounts payable to affiliates 2,038 0 Deferred revenue 5,045 3,941 Deferred income taxes 5,894 5,620 -------- ------ Total current liabilities 31,277 24,403 Other liabilities 2,245 1,739 Deferred income taxes 2,444 2,018 -------- ------ Total liabilities 35,966 28,160 -------- ------ Shareholders' equity: Preferred stock - $.01 par value; 5,000,000 shares authorized; none issued and outstanding 0 0 Common stock - $.01 par value; 45,000,000 shares authorized; 17,309,195 shares issued and outstanding at July 31, 1996; 16,390,762 shares issued and outstanding at October 31, 1995 173 164 Capital in excess of par value 56,933 48,481 Retained earnings 15,369 10,115 Unrealized appreciation on short-term investments 352 464 -------- ------ Total shareholders' equity 72,827 59,224 -------- ------ Commitments and contingencies Total liabilities and shareholders' equity $108,793 87,384 ======== ====== See accompanying notes to interim consolidated financial statements. 1 HEALTH MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In Thousands, Except Per Share Amounts) Three months Nine months ended July 31, ended July 31, ------------------ ----------------- 1996 1995 1996 1995 ------- ------ ------ ------ Revenue: Trade $25,657 20,954 72,256 58,311 Affiliates 128 2,066 4,496 6,735 ------- ------ ------ ------ 25,785 23,020 76,752 65,046 Cost of services: Compensation 14,076 11,381 37,325 31,575 Data processing 4,131 2,037 8,393 5,615 Occupancy 2,071 1,635 5,478 4,847 Other 7,857 3,733 16,369 9,972 ------- ------ ------ ------ 28,135 18,786 67,565 52,009 ------- ------ ------ ------ Operating (loss) margin before amortization of intangibles (2,350) 4,234 9,187 13,037 Amortization of intangibles 51 54 161 189 ------- ------ ------ ------ Operating (loss) income (2,401) 4,180 9,026 12,848 Other income (expense): Interest income, net 186 311 665 663 Loss on investment (927) 0 (927) 0 Merger related costs 0 (19) (489) (1,045) Equity in (loss) earnings of affiliate (109) 11 188 11 ------- ------ ------ ------ (850) 303 (563) (371) (Loss) income before income taxes (3,251) 4,483 8,463 12,477 Income tax benefit (expense) 1,424 (2,070) (3,209) (5,840) ------- ------ ------ ------ Net (loss) income $(1,827) 2,413 5,254 6,637 ======= ====== ====== ====== Earnings per share data: Net (loss) income per weighted average share of common stock outstanding $ (0.11) 0.14 0.29 0.38 ======= ====== ====== ====== Weighted average shares outstanding 17,193 17,538 18,276 17,322 ======= ====== ====== ====== See accompanying notes to interim consolidated financial statements. 2
HEALTH MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) ($ In Thousands) Unrealized Common Stock Appreciation ----------------- Capital In (Depreciation) Total Par Excess Of Retained on Short-term Shareholders' Shares Value Par Value Earnings Investments Equity ---------- ----- ---------- -------- -------------- ------------- Balance at October 31, 1995 16,390,762 $164 48,481 10,115 464 59,224 Net income 0 0 0 5,254 0 5,254 Stock option activity 772,718 8 5,406 0 0 5,414 Employee Stock Purchase Plan activity 145,715 1 1,969 0 0 1,970 Disqualifying dispositions 0 0 1,077 0 0 1,077 Depreciation on short-term investments 0 0 0 0 (112) (112) ---------- ---- ------ ------ ---- ------ Balance at July 31, 1996 17,309,195 $173 56,933 15,369 352 72,827 ========== ==== ====== ====== ==== ======
See accompanying notes to interim consolidated financial statements. 3 HEALTH MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In Thousands) Three months Nine months ended July 31, ended July 31, ------------------ ----------------- 1996 1995 1996 1995 ------- ------ ------ ------ Operating activities: Net (loss) income $(1,827) 2,413 5,254 6,637 Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Loss on investment 927 0 927 0 Depreciation and amortization 756 645 2,267 2,026 Amortization of intangibles 51 54 161 189 Amortization of unearned compensation 0 3 0 10 Gain on disposal of assets 0 0 0 (19) Deferred tax expense 90 147 700 548 Equity in loss (earnings) of affiliate 109 (11) (188) (11) Disqualifying dispositions 297 0 1,077 0 Unrealized appreciation on short-term investments 0 0 0 8 Other 0 0 0 (3) Changes in assets and liabilities: (Increase)decrease in accounts receivable (2,459) 885 (15,875) (7,726) (Increase)decrease in other current assets (4,250) 535 (5,218) 278 Increase in accounts payable and accrued expenses 6,629 2,760 3,458 2,959 Increase in amounts payable to affiliates 2,038 236 2,038 193 Increase(decrease) in deferred revenue 522 (834) 1,104 (833) Increase (decrease) in other assets and liabilities, net 170 (2) 1,127 762 ------- ------ ------ ------ Total adjustments 4,880 4,418 (8,422) (1,619) ------- ------ ------ ------ Net cash provided by (used in) operating activities 3,053 6,831 (3,168) 5,018 ------- ------ ------ ------ Investing activities: Capital asset expenditures (1,677) (333) (3,275) (849) Software capitalization (283) (212) (834) (656) Investment in affiliates 28 (5,610) (29) (6,132) Purchase of short-term investments 0 (147) 0 (5,105) Proceeds from sale of short-term investments 1,771 0 1,134 1,788 ------- ------ ------ ------ Net cash used in investing activities (161) (6,302) (3,004) (10,954) ------- ------ ------ ------ Financing activities: Proceeds from issuance of common stock 203 109 1,970 1,001 Proceeds from exercise of stock options 2,174 198 5,414 1,011 Repayment of notes payable 0 0 0 (342) ------- ------ ------ ------ Net cash provided by financing activities 2,377 307 7,384 1,670 ------- ------ ------ ------ Net increase (decrease) in cash and cash equivalents 5,269 836 1,212 (4,266) Cash and cash equivalents at beginning of period 6,744 9,233 10,801 14,082 Adjustment to cash to reflect change in Health Care Microsystems, Inc. fiscal year 0 0 0 253 ------- ------ ------ ------ Cash and cash equivalents at end of period $12,013 10,069 12,013 10,069 ======= ====== ====== ====== See accompanying notes to interim consolidated financial statements. 4 HEALTH MANAGEMENT SYSTEMS, INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Interim Unaudited Financial Information Health Management Systems, Inc. (HMS or the Company) management is responsible for the accompanying unaudited interim consolidated financial statements and the related information included in these notes to the interim consolidated financial statements. In the opinion of management, the interim consolidated financial statements reflect normal recurring adjustments, necessary for the fair presentation of the Company's financial position and results of operations and cash flows for the periods presented. Results of operations of interim periods are not necessarily indicative of the results to be expected for the entire year. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company as of and for the year ended October 31, 1995 included in the Company's current report on Form 8-K dated April 29, 1996 as filed with the Securities and Exchange Commission (the Commission). 2. HHL Financial Services, Inc. (HHL) On August 21, 1996, the Company announced a one-time charge and revenue reversal pertaining to its relationship with HHL, a major customer of HMS, which is in default of its data processing agreement with the Company. The Company's one-time charge relates to (i) the full reservation of prior period accounts receivable of $2,881,000, (ii) accrual of net costs to be incurred in excess of anticipated revenue relating to the Company's continued contractual obligation with HHL of $3,823,000, and (iii) the write-off of its investment in HHL of $927,000, resulting in a total one-time charge of $7,631,000. Additionally, revenue of $2,180,000 earned and initially recorded in the third quarter was reversed. The result of the total write-off and revenue reversal recognized in the third quarter of $9,811,000 translates to an after-tax impact of $5,514,000, or $0.32 per share. As of July 31, 1996, the Company has accrued $3,823,000 for probable future net cash expenditures related to the Company's continuing contractual obligations with HHL. The Company anticipates that substantially all amounts accrued as of July 31, 1996 will be paid out or otherwise satisfied by the end of fiscal 1997. 3. Supplemental Cash Flow Disclosures Cash paid for income taxes during the quarters ended July 31, 1996 and 1995 was $1,406,000 and $2,645,000, respectively. Cash paid for income taxes during the nine months ended July 31, 1996 and 1995 was $5,887,000 and $2,892,000, respectively. 4. Net Income (Loss) Per Common Share Net income (loss) per common share has been computed by dividing net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding during each period. Common stock equivalents utilizing the treasury stock method are included in the computation of weighted average number of shares outstanding for the three month period ended July 31, 1995 and the nine month periods ended July 31, 1996 and 1995. Common stock equivalents have not been included in the computation of weighted average number of shares outstanding for the three month period ended July 31, 1996, as the effect would be anti-dilutive. 5 Item 2--Management's Discussion and Analysis of Results of Operations and Financial Condition--Three Month and Nine Month Periods Ended July 31, 1996 and 1995 Operating Results Three Months Ended July 31, 1996 Revenue for the quarter ended July 31, 1996 was $25,785,000, an increase of $2,765,000 or 12% over the comparable period in 1995, and represented the Company's tenth consecutive quarterly revenue increase. During the quarter ended July 31, 1996, the Company recorded a reversal of $2,180,000 of HHL revenue which was initially recorded in the quarter. Revenue for the third quarter before the reversal was $27,965,000, an increase of $4,945,000 or 21% over the comparable prior year period. The Company's proprietary services, Retroactive Claims Reprocessing (RCR)(SM), Comprehensive Account Management Services (CAMS)(SM), and Third Party Liability Recovery (TPLR)(SM), collectively after the revenue reversal comprise the most significant of the Company's services, accounting for $18,194,000 or 71% of the Company's consolidated revenue for the third quarter of 1996, compared to $16,673,000 or 72% of consolidated revenue for the comparable prior year quarter. Revenue from proprietary services after the revenue reversal increased 9% over the third quarter of the prior year, principally due to revenue generated by the Company's TPLR and RCR engagements. The Company's Managed Care Support (MCS) services revenue, generated by the Company's Health Care microsystems, Inc. subsidiary (HCm), was $5,294,000, an increase of $1,081,000 or 26% over the comparable prior year period. The Company's Electronic Data Interchange (EDI) services revenue, realized by the Company's Quality Medi-Cal Adjudication, Inc. subsidiary (QMA), was $2,297,000 for the third quarter of 1996, an increase of $163,000 or 8% over the third quarter of 1995. Cost of services for the third quarter of 1996 was $28,135,000, an increase of $9,349,000 or 50% over the comparable period in 1995. During the quarter ended July 31, 1996, the Company recorded a one-time charge pertaining to its relationship with HHL (see Note 2). This one-time charge increased cost of services by $6,704,000. Thus, costs in the third quarter of 1996 are 36% over those for the quarter ended July 31, 1995. The $6,704,000 charge was comprised of (i) $1,362,000 of net compensation costs, and (ii) $2,199,000 of net data processing costs associated with the continued servicing of the HHL data processing agreement, plus (iii) $3,143,000 of other costs, including $2,881,000 of bad debt expense related to HHL receivables and $262,000 of net other operating expenses associated with the continued servicing of the HHL data processing agreement. Compensation expense, the Company's largest expense component, totalled $14,076,000, an increase of $2,695,000 or 24% over the comparable prior year period. Compensation expense prior to the one-time charge of $1,362,000 was $12,714,000, an increase of $1,333,000 or 12% over the comparable prior year period. Exclusive of the effect of the one-time charge, the increase in compensation expense reflected a 19% increase in the average number of employees in support of business growth and expansion, offset by salary savings associated with employee turnover. Data processing expense for the third quarter of 1996 was $4,131,000, an increase of $2,094,000 or 103% over the comparable period in 1995. Data processing expense prior to the one-time charge of $2,199,000 was $1,932,000, a decrease of $105,000 or 5%. This decrease was attributable to the Company's ability to reallocate resources previously applied to HHL data processing to other projects and a deferral of investments in computer equipment. 6 Occupancy expense for the third quarter of 1996 was $2,071,000, an increase of $436,000 or 27% over the comparable period in 1995. This increase was primarily due to expansion of the Company's facilities across the Country, including the Company's headquarters. Other operating expense for the third quarter of 1996 was $7,857,000, an increase of $4,124,000 or 110% over the comparable prior year period. Other operating expense prior to the one-time charge of $3,143,000 was $4,714,000, an increase of $981,000 or 26%. Exclusive of the effect of the one-time charge, this increase was principally attributable to higher levels of direct project costs, employee related expenses, and professional fees. Operating loss before amortization of intangible assets for the quarter ended July 31, 1996 was $2,350,000, a decrease of $6,584,000 or 156% from the $4,234,000 of operating margin realized in the comparable period in 1995. This represents a negative operating margin rate of 9% during the third quarter of 1996 compared to the 18% positive operating margin rate experienced in the third quarter of 1995. Operating margin before amortization of intangibles and prior to the one-time charge and revenue reversal was $6,534,000, an increase of $2,300,000 or 54%. Exclusive of the effect of the one-time charge and revenue reversal, the operating margin rate would have been 23%, an increase of 5 percentage points over the 18% realized in the comparable prior year period. This increase is a result of revenue before the reversal increasing at a higher rate than total operating expenses before the one-time charge. Amortization of intangible assets for the third quarter of 1996 was $51,000, a decrease of $3,000 or 6% from the third quarter of 1995. The decrease results from the full amortization of one of the intangible assets. Net interest and other income of $186,000 in the third quarter of 1996 decreased by $125,000 from $311,000 in the third quarter of 1995, primarily as a function of a higher interest expense related to a potential tax liability and loan origination fees associated with the new $40,000,000 line of credit obtained by the Company during the quarter. The Company's investment in HHL of $927,000 was written off in the third quarter of 1996 as part of the one-time charge. Equity in the loss of the Company's Health Information Systems Corporation affiliate was $109,000 for the third quarter of 1996, a decrease of $120,000 from the $11,000 of income recorded during the third quarter of 1995. The Company's income tax benefit for the third quarter of 1996 was $1,424,000, resulting in an effective tax rate of approximately 43.8%. This compares to income tax expense of $2,070,000 and an effective tax rate of approximately 46.2% for the third quarter of 1995. The 169% decrease in income tax expense was primarily the result of the HHL one-time charge and revenue reversal which decreased pre-tax income by $9,811,000 and reduced tax expense by $4,297,000. Income tax expense without the HHL one-time charge and revenue reversal would have been $2,873,000, an increase of $803,000 or 39% over the comparable prior year period. This is in line with the increase in pre-tax income before the HHL one-time charge and revenue reversal of $2,077,000 or 46%. As a result of the HHL one-time charge and revenue reversal, net loss and loss per share for the three month period ended July 31, 1996 were $1,827,000 and $0.11, a 176% and 179% decrease, respectively, from the comparable prior year period. Net income and earnings per share prior to the one-time charge and revenue reversal would have been $3,687,000 and $0.21, an increase of $1,274,000 and $0.07 or 53% and 50%, respectively. 7 Nine Months Ended July 31, 1996 Revenue for the nine months ended July 31, 1996 was $76,752,000, an increase of $11,706,000 or 18% over the comparable prior year period. During the nine months ended July 31, 1996, the Company recorded a reversal of $2,180,000 of HHL revenue recorded in the third quarter. Revenue for the nine months ended July 31, 1996 before the reversal was $78,932,000, an increase of $13,886,000 or 21% over the comparable prior year period. Revenue from proprietary services after the revenue reversal grew $8,801,000 or 18%, to $56,567,000, principally due to revenue generated by the Company's TPLR and RCR engagements. Revenue from MCS services was $13,643,000, an increase of $2,530,000 or 23% over the comparable prior year period. Revenue from EDI services was $6,542,000, an increase of $375,000 or 6% from last year. Cost of services for the nine months ended July 31, 1996 was $67,565,000, an increase of $15,556,000 or 30% over the comparable period in 1995. During the nine months ended July 31, 1996, the Company recorded a one-time charge pertaining to its relationship with HHL. This charge increased cost of services by $6,704,000 or 13% over the quarter ended July 31, 1995. The $6,704,000 charge was comprised of (i) $1,362,000 of net compensation costs, and (ii) $2,199,000 of net data processing costs associated with the continued servicing of the HHL data processing agreement, plus (iii) $3,143,000 of other operating costs, including $2,881,000 of bad debt expense related to HHL receivables and $262,000 of net other operating expenses associated with the continued servicing of the HHL data processing agreement. Compensation expense, the Company's largest component, totalled $37,325,000, an increase of $5,750,000 or 18% over the comparable prior year period. Compensation expense prior to the one-time charge of $1,362,000 was $35,963,000, an increase of $4,388,000 or 14%. Exclusive of the effect of the one-time charge, this increase reflected a 16% increase in the average number of employees in support of business growth and expansion, offset by salary savings associated with employee turnover. Data processing expense was $8,393,000, an increase of $2,778,000 or 49% over the comparable period in 1995. Data processing expense prior to the one-time charge of $2,199,000 was $6,194,000, an increase of $579,000 or 10%. Exclusive of the effect of the one-time charge, this increase was attributable to costs associated with the continuing enhancement of the Company's data processing environments. Occupancy expense was $5,478,000, an increase of $631,000 or 13% over the comparable period in 1995. This increase was primarily due to the expansion of the Company's facilities, including the Company's headquarters. Other operating expense was $16,369,000, an increase of $6,397,000 or 64% over 1995. Other operating expense prior to the one-time charge of $3,143,000 was $13,226,000, an increase of $3,254,000 or 33%. Exclusive of the effect of the one-time charge, this increase was principally attributable to higher levels of direct project costs, including professional fees, employee related costs, and professional marketing fees. Operating margin before amortization of intangible assets for the nine months ended July 31, 1996 was $9,187,000, a decrease of $3,850,000 or 30% from the $13,037,000 amount realized in the comparable period in 1995. The Company's operating margin rate before amortization of intangible assets was 12%, compared to 20% in 1995. Operating margin before amortization of intangibles and prior to the one-time charge and revenue reversal was $18,071,000, an increase of $5,034,000 or 39%. Exclusive of the effect 8 of the one-time charge and revenue reversal, the operating margin rate would have been 23%, an increase of 3 percentage points over the 20% realized in the comparable prior year period. Amortization of intangible assets for the nine months ended July 31, 1996 was $161,000, a decrease of $28,000 or 15% from the comparable prior year period. The decrease results from the full amortization of one of the Company's intangible assets. Net interest and other income of $665,000 in the nine months ended July 31, 1996 increased by $2,000 from $663,000 in the comparable period in 1995; the increase would have been $45,000 but for the loan origination fees associated with the Company's securing a new line of credit with a major money center financial institution. The Company wrote off its investment in HHL of $927,000 in the nine months ended July 31, 1996 as part of the one-time charge. Merger related costs of $489,000 were incurred in the nine months ended July 31, 1996 related to the Company's merger with CDR Associates, Inc. (CDR) in April 1996. Merger related costs of $1,045,000 were incurred in the nine months ended July 31, 1995 related to the Company's merger with HCm in February 1995. The Company's income tax expense for the nine months ended July 31, 1996 was $3,209,000, resulting in an effective tax rate of approximately 37.9%. This compares to income tax expense of $5,840,000 and an effective tax rate of approximately 46.8% for the prior year period. The reduction in the effective tax rate results from the non-taxability of income from CDR for the first six months of the fiscal year due to its status as an S Corporation, and from the decrease of non-tax deductible merger costs from the comparable prior year period. Income tax expense without the HHL one-time charge and revenue reversal would have been $7,506,000, an increase of $1,666,000 or 29% over the comparable prior period. Net income and earnings per share for the nine months ended July 31, 1996 were $5,254,000 and $0.29, a 21% and 24% decrease, respectively, from net income of $6,637,000 and $0.38 in earnings per share reported in the comparable prior year period. Net income and earnings per share prior to the one-time charge, revenue reversal, and merger costs were $11,257,000 and $0.62 year to date, an increase of $3,575,000 and $0.18 over the same period last year, or 47% and 41%, respectively. Liquidity and Capital Resources At July 31, 1996, the Company had $55,828,000 in net working capital, $14,185,000 greater than working capital at October 31, 1995. The Company's principal sources of liquidity at July 31, 1996 consisted of cash, cash equivalents, and short-term investments aggregating $30,054,000 and net accounts receivable of $47,505,000. Accounts receivable at July 31, 1996 reflected an increase of $15,875,000 or 50% over the October 31, 1995 balance. This increase is due to revenue growth, delays in processing payments through a government client, and changes in the Company's product revenue mix which serve to elongate the Company's liquidation cycle. Management does not believe that this increase reflects adversely on the quality or collectibility of the Company's accounts receivable. On July 15, 1996, the Company entered into a $40,000,000 unsecured revolving credit facility with a major money center financial institution. The credit facility, which is fully available as of the date of this report, has a term of three years, carries an unused commitment fee of 20 basis points, and bears interest at the institution's prime lending rate, or LIBOR plus 5/8%, at the Company's option. The Company has advised the bank that, as a result of the one-time charge and revenue reversal recorded for HHL in the quarter ended July 31, 1996 the Company was not in compliance with one of the financial covenants of the Credit Agreement. The bank has waived the Company's compliance with this covenant for such 9 quarter and amended the Credit Agreement to revise the covenant. The Company would have been in compliance under the revised covenant. * * * * * This document contains forward-looking statements. Such statements by their nature entail various risks, reflecting the dynamic, complex, and rapidly changing nature of the health care industry. Results actually achieved may differ materially from those currently anticipated. The various risks include but are not necessarily limited to: (i) the continued ability of HMS to grow internally or by acquisition, (ii) the success experienced in integrating acquired businesses into the HMS group of companies, (iii) changing conditions in the health care industry which could simplify the reimbursement process and/or data management requirements associated with the health care transfer payment process and adversely affect HMS's business, (iv) government regulatory and political pressures which could reduce the rate of growth of health care expenditures, (v) competitive actions by other companies, and (vi) other risks, as noted in HMS's registration statements and periodic reports filed with the Commission. 10 HEALTH MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES PART II--OTHER INFORMATION Item 1 Legal Proceedings - No material legal proceedings are pending. Item 2 Changes in Securities - None Item 3 Defaults Upon Senior Securities - None Item 4 Submission of Matters to a Vote of Security Holders - None Item 5 Other Information - None Item 6 Exhibits and Reports on Form 8-K (a) Exhibits--See Exhibit Index (b) Reports on Form 8-K - None 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: September 13, 1996 HEALTH MANAGEMENT SYSTEMS, INC. (Registrant) /s/ Phillip Siegel Phillip Siegel Vice President and Chief Financial Officer 12 HEALTH MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES EXHIBIT INDEX Exhibit Number Description of Exhibit 10.1 Credit Agreement and Guaranty Among Health Management Systems, Inc., as Borrower, Accelerated Claims Processing, Inc., Quality Medi-Cal Adjudication, Incorporated, Health Care microsystems, Inc. and CDR Associates, Inc., as Guarantors, and The Chase Manhattan Bank, as Bank (filed herewith). 10.1(i) First Amendment to Credit Agreement and Guaranty and Waiver (filed herewith). 10.2 Lease, dated as of March 15, 1996, by and between 387 P.A.S. Enterprises, as Landlord, and Health Management Systems, Inc., as Tenant (filed herewith). 11 Computation of Earnings Per Share (filed herewith) 27 Financial Data Schedule, which is submitted electronically to the Securities and Exchange Commission for informational purposes only and not filed 13 EX-10.1 2 CREDIT AGREEMENT [EXECUTION COPY] CREDIT AGREEMENT AND GUARANTY AMONG HEALTH MANAGEMENT SYSTEMS, INC., as Borrower, ACCELERATED CLAIMS PROCESSING, INC., QUALITY MEDI-CAL ADJUDICATION, INCORPORATED, HEALTH CARE MICROSYSTEMS, INC., and CDR ASSOCIATES, INC., as Guarantors and THE CHASE MANHATTAN BANK, as Bank TABLE OF CONTENTS Page ARTICLE I DEFINITIONS AND ACCOUNTING TERMS . . . 1 SECTION 1.01. Defined Terms. . . . . . . . . . . . . 1 SECTION 1.02. Accounting Terms . . . . . . . . . . . 12 ARTICLE II AMOUNT AND TERMS OF THE CREDITS. . . . 13 SECTION 2.01. Loans. . . . . . . . . . . . . . . . . 13 SECTION 2.02. Reduction of Revolving Credit Facility . . . . . . . . . . . . . . . 13 SECTION 2.03. Notice and Manner of Borrowing; Minimum Amounts. . . . . . . . . . . . 13 SECTION 2.04. Interest Periods; Conversions; Renewals . . . . . . . . . . . . . . . 14 SECTION 2.05. Interest . . . . . . . . . . . . . . . 15 SECTION 2.06. Note . . . . . . . . . . . . . . . . . 15 SECTION 2.07. Optional Prepayments . . . . . . . . . 15 SECTION 2.08. Fees . . . . . . . . . . . . . . . . . 16 SECTION 2.09. Method of Payment. . . . . . . . . . . 16 SECTION 2.10. Use of Proceeds. . . . . . . . . . . . 16 SECTION 2.11. Additional Costs . . . . . . . . . . . 16 SECTION 2.12. Limitation on Types of Loans . . . . . 18 SECTION 2.13. Illegality . . . . . . . . . . . . . . 18 SECTION 2.14. Treatment of Affected Loans. . . . . . 19 SECTION 2.15. Risk-Based Capital . . . . . . . . . . 19 SECTION 2.16. Certain Compensation . . . . . . . . . 20 ARTICLE III LETTERS OF CREDIT. . . . . . . . . . . 20 SECTION 3.01. Standby Letters of Credit. . . . . . . 20 SECTION 3.02. Application for Standby Letter of Credit . . . . . . . . . . . . . . . . 21 SECTION 3.03. Standby Letter of Credit Fees and Expenses . . . . . . . . . . . . . . . 21 SECTION 3.04. Reimbursement Obligation . . . . . . . 22 ARTICLE IV GUARANTY . . . . . . . . . . . . . . . 22 SECTION 4.01. Guaranty . . . . . . . . . . . . . . . 22 SECTION 4.02. Guarantor's Obligations Unconditional. . . . . . . . . . . . 23 SECTION 4.03. Waivers. . . . . . . . . . . . . . . . 24 SECTION 4.04. Subrogation. . . . . . . . . . . . . . 24 ARTICLE V CONDITIONS PRECEDENT . . . . . . . . . 24 SECTION 5.01. Conditions Precedent to the Initial Loan or Standby Letter of Credit . . . 24 SECTION 5.02. Conditions Precedent to All Loans and All Standby Letters of Credit. . . 26 SECTION 5.03. Deemed Representation. . . . . . . . . 26 ARTICLE VI REPRESENTATIONS AND WARRANTIES . . . . 27 Page SECTION 6.01. Incorporation, Good Standing and Due Qualification. . . . . . . . . . . 27 SECTION 6.02. Corporate Power and Authority. . . . . 27 SECTION 6.03. Legally Enforceable Agreement. . . . . 27 SECTION 6.04. Financial Statements . . . . . . . . . 28 SECTION 6.05. Labor Disputes and Acts of God . . . . 29 SECTION 6.06. Other Agreements . . . . . . . . . . . 29 SECTION 6.07. Litigation . . . . . . . . . . . . . . 29 SECTION 6.08. No Defaults on Outstanding Judgments or Orders. . . . . . . . . . 29 SECTION 6.09. Ownership and Liens. . . . . . . . . . 29 SECTION 6.10. Subsidiaries and Ownership of Stock. . 29 SECTION 6.11. ERISA. . . . . . . . . . . . . . . . . 30 SECTION 6.12. Operation of Business. . . . . . . . . 30 SECTION 6.13. Taxes. . . . . . . . . . . . . . . . . 30 SECTION 6.14. Subscription Agreement . . . . . . . . 30 ARTICLE VII AFFIRMATIVE COVENANTS. . . . . . . . . 31 SECTION 7.01. Maintenance of Existence . . . . . . . 31 SECTION 7.02. Maintenance of Records . . . . . . . . 31 SECTION 7.03. Maintenance of Properties. . . . . . . 31 SECTION 7.04. Conduct of Business. . . . . . . . . . 31 SECTION 7.05. Maintenance of Insurance . . . . . . . 31 SECTION 7.06. Compliance With Laws . . . . . . . . . 31 SECTION 7.07. Right of Inspection. . . . . . . . . . 32 SECTION 7.08. Reporting Requirements . . . . . . . . 32 SECTION 7.09. Transactions with HHL. . . . . . . . . 34 SECTION 7.10. New Subsidiaries.. . . . . . . . . . . 34 ARTICLE VIII NEGATIVE COVENANTS . . . . . . . . . . 35 SECTION 8.01. Liens. . . . . . . . . . . . . . . . . 35 SECTION 8.02. Debt . . . . . . . . . . . . . . . . . 36 SECTION 8.03. Mergers, Etc.. . . . . . . . . . . . . 37 SECTION 8.04. Dividends. . . . . . . . . . . . . . . 37 SECTION 8.05. Sale of Assets . . . . . . . . . . . . 38 SECTION 8.06. Investments. . . . . . . . . . . . . . 38 SECTION 8.07. Guaranties, Etc. . . . . . . . . . . . 39 SECTION 8.08. Transactions With Affiliate. . . . . . 39 SECTION 8.09. Restrictions on Dividends. . . . . . . 39 SECTION 8.10. Stock of Subsidiary, Etc . . . . . . . 39 SECTION 8.11. Subscription Agreement . . . . . . . . 40 ARTICLE IX FINANCIAL COVENANTS. . . . . . . . . . 40 SECTION 9.01. Minimum Consolidated Current Ratio . . 40 SECTION 9.02. Minimum Consolidated Tangible Net Worth. . . . . . . . . . . . . . . . . 40 SECTION 9.03. Consolidated Leverage Ratio. . . . . . 40 SECTION 9.04. Minimum Consolidated Cash Flow Ratio. . . . . . . . . . . . . . . . . 40 SECTION 9.05. Consolidated Interest Coverage . . . . 41 ARTICLE X EVENTS OF DEFAULT. . . . . . . . . . . 41 Page SECTION 10.01. Events of Default . . . . . . . . . 41 ARTICLE XI MISCELLANEOUS. . . . . . . . . . . . . 44 SECTION 11.01. Amendments, Etc. . . . . . . . . . . 44 SECTION 11.02. Notices, Etc.. . . . . . . . . . . . 44 SECTION 11.03. No Waiver; Remedies. . . . . . . . . 44 SECTION 11.04. Assignment; Participation. . . . . . 45 SECTION 11.05. Costs, Expenses and Taxes. . . . . . 45 SECTION 11.06. Indemnification. . . . . . . . . . . 46 SECTION 11.07. Right of Setoff. . . . . . . . . . . 46 SECTION 11.08. Governing Law. . . . . . . . . . . . 47 SECTION 11.09. Severability of Provisions . . . . . 47 SECTION 11.10. Headings . . . . . . . . . . . . . . 47 SECTION 11.11. Jurisdiction; Immunities; Waiver of Jury Trial. . . . . . . . . . . . 47 EXHIBITS EXHIBIT A FORM OF NOTE EXHIBIT B FORM OF OPINION OF COUNSEL TO BORROWER AND GUARANTORS EXHIBIT C SUBSCRIPTION AGREEMENT CREDIT AGREEMENT AND GUARANTY dated as of July 15, 1996 among HEALTH MANAGEMENT SYSTEMS, INC., a New York corporation (the "Borrower"), ACCELERATED CLAIMS PROCESSING, INC., a Delaware corporation ("ACP"), QUALITY MEDI-CAL ADJUDICATION, INCORPORATED, a California corporation ("QMA"), HEALTH CARE MICROSYSTEMS, INC., a California corporation ("HCM"), CDR ASSOCIATES, INC., a Maryland corporation ("CDR") and THE CHASE MANHATTAN BANK (the "Bank"). The parties hereto hereby agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Defined Terms. As used in this Agreement, the following terms have the following meanings (terms defined in the singular to have the same meaning when used in the plural and vice versa): "ACP" means Accelerated Claims Processing, Inc., a Delaware Corporation. "Acquisitions" means the purchase or the commitment to purchase by the Borrower or any Guarantor of (1) an equity interest in any Person, whether in the form of shares of capital stock, partnership interest, membership interest or otherwise, or (2) any assets of or the business of another Person (other than any assets required for the ongoing operation of the business of the Borrower or any Guarantor, as the case may be). "Affected Loans" shall have the meaning assigned to such term in Section 2.14. "Affiliate" means any Person: (1) which directly or indirectly controls, or is controlled by, or is under common control with the Borrower or any Guarantor; (2) which directly or indirectly beneficially owns or holds five percent (5%) or more of any class of voting stock of the Borrower or any Guarantor; or (3) five percent (5%) or more of the voting stock of which is directly or indirectly beneficially owned or held by the Borrower or any Guarantor. The term control means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Agreement" means this Credit Agreement and Guaranty, as amended, supplemented, or modified from time to time. "Applicable Lending Office" means, for each of the Prime Rate Loans and LIBOR Loans, the Lending Office of the Bank (or of an affiliate of the Bank) designated for the Prime Rate Loans and LIBOR Loans, on the signature pages hereof or such other office of the Bank (or of an affiliate of the Bank) as the Bank may from time to time specify to the Borrower as the office by which the Prime Rate Loans or LIBOR Loans are to be made and maintained. "Applicable Margin" means with respect to a LIBOR Loan five eighths of one percent (.625%). "Application" means each application submitted by the Borrower requesting that the Bank issue a Standby Letter of Credit for the account of the Borrower. "Board of Governors" means the Board of Governors of the Federal Reserve System or any successor. "Borrower" means Health Management Systems, Inc., a New York corporation. "Borrowing Notice" has the meaning specified in Section 2.03. "Broken Funding Fee" means an amount equal to the difference between (1) the amount of interest which otherwise would have accrued on the principal amount of the LIBOR Loan so prepaid or unborrowed over the period equal to the remaining portion of the applicable Interest Period and (2) the amount of interest the Bank would earn if such principal amount were reinvested for such remaining portion of the applicable Interest Period in the highest quality U.S. Treasury obligations in an amount equal to the prepaid or unborrowed principal amount and with a maturity approximately equal to such remaining portion of the applicable Interest Period. "Business Day" means: (1) any day other than a Saturday, Sunday, or other day on which commercial banks in New York City are authorized or required to close under the laws of the State of New York; and (2) if the applicable day relates to a LIBOR Loan, an Interest Period with respect to a LIBOR Loan, or notice with respect to any LIBOR Loan, a day on which dealings in Dollar deposits are also carried on in the London interbank market and banks are open for business in London. "Cash Collateral" means a deposit by the Borrower, made in immediately available funds, to a savings, checking or time deposit account at the Bank or the purchase by the Borrower of a certificate of deposit issued by the Bank and the execution of all documents and the taking of all steps required to give the Bank a perfected security interest in such deposit or certificate of deposit. "Capital Lease" means any lease which has been or should be capitalized on the books of the lessee in accordance with GAAP. "CDR" means CDR Associates, Inc., a Maryland corporation. "Closing Date" means July 15, 1996. "Commitment" means, collectively, the Loan Commitment and the Standby Letter of Credit Commitment. "Consolidated Capital Expenditures" means, for any period, the Dollar amount of gross expenditures (including obligations under Capital Leases) made by the Borrower and its Consolidated Subsidiaries. "Consolidated Current Assets" means, at any time, consolidated total current assets of the Borrower and its Consolidated Subsidiaries less all consolidated prepaid expenses of the Borrower and its Consolidated Subsidiaries, all as determined in accordance with GAAP. "Consolidated Current Liabilities" means, at any time, consolidated total current liabilities of the Borrower and its Consolidated Subsidiaries, all as determined in accordance with GAAP. "Consolidated Debt Service" means, for any period, without duplication, the sum of: (1) all Consolidated Interest Expense required to be paid during such period; (2) all principal required to be paid on all outstanding Debt by the Borrower or any of its Consolidated Subsidiaries during such period, including but not limited to payments on Consolidated Senior Debt, and (3) all other amounts required to be paid during such period by the Borrower or any of its Consolidated Subsidiaries under the Loan Documents or any other agreement related to and governing the terms of outstanding Debt of the Borrower or any of its Consolidated Subsidiaries. "Consolidated Deferred Assets" means, at any time, consolidated deferred income taxes of the Borrower and its Consolidated Subsidiaries, all as determined in accordance with GAAP. "Consolidated Deferred Liabilities" means, at any time, both consolidated deferred income taxes and consolidated deferred revenue of the Borrower and its Consolidated Subsidiaries, all as determined in accordance with GAAP. "Consolidated Depreciation" means, at any time, consolidated depreciation and amortization of property, equipment and intangible assets of the Borrower and its Consolidated Subsidiaries, all as determined in accordance with GAAP. "Consolidated Earnings Before Interest, Taxes and Depreciation" means, for any period, an amount equal to the sum of, without duplication, (1) Consolidated Net Income for such period plus (2) Consolidated Interest Expense for such period plus (3) Consolidated Taxes for such period plus (4) Consolidated Depreciation for such period. "Consolidated Interest Expense" means, for any period, consolidated interest expense of the Borrower and its Consolidated Subsidiaries, all as determined in accordance with GAAP. "Consolidated Net Income" means, for any period, the consolidated net income of the Borrower and its Consolidated Subsidiaries, exclusive of any extraordinary items whether gains or losses, all as determined in accordance with GAAP. "Consolidated Senior Debt" means, at any time, the aggregate amount of all obligations of the Borrower or any of its Consolidated Subsidiaries to the Bank, including but not limited to the Loan, the face amount of all outstanding Standby Letters of Credit Obligations and all other obligations to the Bank under any of the Loan Documents. "Consolidated Subsidiaries" means all Subsidiaries of the Borrower that should be included in the Borrower's consolidated financial statements, all as determined in accordance with GAAP. "Consolidated Taxes" means, for any period, the consolidated income tax benefit (expense) of the Borrower and its Consolidated Subsidiaries, all as determined in accordance with GAAP. "Consolidated Tangible Net Worth" means, at any time, the excess of (1) Consolidated Total Tangible Assets over (2) Consolidated Total Liabilities. "Consolidated Total Intangible Assets" means, at any time, the consolidated intangible assets of the Borrower and its Consolidated Subsidiaries, all as determined in accordance with GAAP, including but not limited to non- compete contracts, employment contracts, deferred or prepaid transaction costs, capitalized research and development costs, capitalized interest, debt discount and expenses, goodwill, patents, trademarks, copyrights, franchise, license and other intangible assets. "Consolidated Total Liabilities" means, at any time, consolidated total liabilities of the Borrower and its Consolidated Subsidiaries, all as determined in accordance with GAAP. "Consolidated Total Tangible Assets" means, at any time, the excess of (1) consolidated total assets of the Borrower and its Consolidated Subsidiaries, as determined in accordance with GAAP, over (2) Consolidated Total Intangible Assets. "Debt" means: (1) indebtedness or liability for borrowed money, or for the deferred purchase price of property or services (including trade obligations); (2) obligations as lessee under Capital Leases; (3) current liabilities in respect of unfunded vested benefits under any Plan; (4) obligations under letters of credit issued for the account of any Person; (5) all obligations arising under bankers' or trade acceptance facilities; (6) all guarantees, endorsements (other than for collection or deposit in the ordinary course of business), and other contingent obligations to purchase any item included in this definition, to provide funds for payment, to supply funds to invest in any Person, or otherwise to assure a creditor against loss; (7) all obligations secured by any Lien on property owned by such Person, whether or not the obligations have been assumed; and (8) all obligations under any agreement providing for a swap, ceiling rate, ceiling and floor rates, contingent participation or other hedging mechanism with respect to interest or other fees payable on any of the items described in this definition. "Default" means any of the events specified in Section 10.01, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Default Rate" means, with respect to an amount of any Loan not paid when due, a rate per annum equal to: (1) if such Loan is a Prime Rate Loan, a variable rate per annum equal to two percent (2%) above the Prime Rate; or (2) if such Loan is a LIBOR Loan, a fixed rate per annum equal to two and five-eighths of one percent (2.625%) above the LIBOR Interest Rate until the end of the period the LIBOR Interest Rate applies, and thereafter, a variable rate per annum equal to two percent (2%) above the Prime Rate. "Dividends" means, for any period, all dividends declared and paid by the Borrower during such period; provided, however, dividends may only be paid by the Borrower if permitted under the terms of this Agreement. "Dollars" and the sign "$" mean lawful money of the United States of America. "Environmental Discharge" means any discharge or release of any Hazardous Materials in violation of any applicable Environmental Law. "Environmental Law" means any Law relating to pollution or the environment, including Laws relating to noise or to emissions, discharges, releases or threatened releases of Hazardous Materials into the workplace, the community or the environment, or otherwise relating to the generation, manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials. "Environmental Notice" means any complaint, order, citation, letter, inquiry, notice or other written communication from any Person (1) affecting or relating to the Borrower's or any Subsidiary's compliance with any Environmental Law in connection with any activity or operations at any time conducted by the Borrower or such Subsidiary, (2) relating to the occurrence or presence of or exposure to or possible or threatened or alleged occurrence or presence of or exposure to Environmental Discharges or Hazardous Materials at any of the Borrower's or any Subsidiary's locations or facilities, including, without limitation: (a) the existence of any contamination or possible or threatened contamination at any such location or facility; and (b) remediation of any Environmental Discharge or Hazardous Materials at any such location or facility or any part thereof, and (3) any violation or alleged violation of any relevant Environmental Law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations and published interpretations thereof. "ERISA Affiliate" means any trade or business (whether or not incorporated) which together with the Borrower would be treated as a single employer under Section 4001 of ERISA. "Event of Default" means any of the events specified in Section 10.01, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Existing Lines of Business" means the business of providing data processing and information management, analytical and transactional services, or facilities management services for data processing to hospitals, government institutions, health care providers and other institutions and entities. "Fiscal Year" or "fiscal year" means a period from November 1 to October 31. "Financial Advisory Fee" means a fee payable by the Borrower to the Bank on the Closing Date in the amount of Thirty-Five Thousand Dollars ($35,000). "GAAP" means generally accepted accounting principles in the United States used in the preparation of the financial statements referred to in Section 6.06. "Good Faith Contest" means the contest of an item if: (1) the item is diligently contested in good faith by appropriate proceedings timely instituted; (2) adequate cash reserves are established with respect to the contested item; (3) during the period of such contest, the enforcement of any contested item is effectively stayed; and (4) during the period of the contest the failure to pay or comply with the contested item could not result in a Material Adverse Change. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Governmental Approvals" means any authorization, consent, approval, license or exemption of, registration or filing with or report or notice to, any governmental unit, whether federal, state, local or foreign. "Guarantor" means each of ACP, QMA, HCM, and CDR. "Guarantors" means, collectively, ACP, QMA, HCM, and CDR. "Guaranty" has the meaning specified in Section 4.01. "Hazardous Materials" means any pollutant, effluents, emissions, contaminants, toxic or hazardous wastes or substances, as any of those terms are defined from time to time in or for the purposes of any relevant Environmental Law, including asbestos fibers and friable asbestos, polychlorinated biphenyls, and any petroleum or hydrocarbon-based products or derivatives. "HCM" means Health Care microsystems, Inc., a California corporation. "HHL" means HHL Financial Services, Inc., a Delaware corporation. "Instrument" means with respect to each Standby Letter of Credit, each written demand for payment under such Standby Letter of Credit, whether in the form of a draft, receipt, acceptance, or teletransmission, including but not limited to telex or cable. "Interest Period" means, with respect to any LIBOR Loan, the period commencing on the date such LIBOR Loan is made, converted or continued and ending, as the Borrower may select, pursuant to Section 2.04 on the numerically corresponding day in the first, third or sixth calendar month thereafter, except that each such Interest Period that commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month. If an Interest Period for a LIBOR Loan would end on a day which is not a Business Day, such Interest Period shall be extended to the next Business Day, unless such Business Day would fall in the next calendar month, in which event such Interest Period shall end on the Immediately preceding Business Day. There are no Interest Periods for Prime Rate Loans. "Law" means any federal, state or local statute, law, rule, regulation, ordinance, order, code, policy or rule of common law, now or hereafter in effect, and in each case as amended, and any judicial or administrative interpretation thereof by a Governmental Authority or otherwise, including any judicial or administrative order, consent, decree or judgment. "LIBOR Interest Rate" means for any LIBOR Loan, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Bank to be equal to the quotient of (1) the LIBOR Base Rate for such Loan for the Interest Period therefor divided by (2) one minus the LIBOR Reserve Requirement for such Interest Period. "LIBOR Loan" means any Loan when and to the extent the interest rate therefor is determined by reference to the LIBOR Interest Rate. "LIBOR Base Rate" means, with respect to any LIBOR Loan for any Interest Period therefore, the rate per annum (rounded upward, if necessary, to the nearest 1/16 of 1%) determined by the Bank to be the rates quoted by the principal London branch of the Bank at approximately 11:00 a.m. London time (or as soon thereafter as practicable) on the date two (2) Business Days prior to the first day of such Interest Period for such LIBOR Loan for the offering to leading banks in the London interbank market of Dollar deposits in immediately available funds, for a period, and in an amount, comparable to such Interest Period and principal amount of the LIBOR Loan which shall be made, continued or converted by the Bank and outstanding during such Interest Period. "LIBOR Reserve Requirement" means, for any LIBOR Loan, the average maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained during the Interest Period for such Loan under Regulation D by member banks of the Federal Reserve System in New York City with deposits exceeding One Billion Dollars ($l,000,000,000) against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the LIBOR Reserve Requirement shall also reflect any other reserves required to be maintained by such member banks by reason of any Regulatory Change against (1) any category of liabilities which includes deposits by reference to which the LIBOR Base Rate is to be determined or (2) any category of extensions of credit or other assets which include LIBOR Loans. "Lien" means any mortgage, deed of trust, pledge, security interest, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority, or other security agreement or preferential arrangement, charge, or encumbrance of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction to evidence any of the foregoing). "Loan" or "Loans" shall have the meaning assigned to such terms in Section 2.01. "Loan Commitment" has the meaning specified in Section 2.01. "Loan Documents" means this Agreement (including the Guaranty), the Note and each Application. "Material Adverse Change" means either (1) a material adverse change in the status of the business, results of operations, condition (financial or otherwise), property or prospects of the Borrower or any Guarantor, or (2) any event or occurrence of whatever nature which could have a material adverse effect on the Borrower's or any Guarantor's ability to perform its obligations under the Loan Documents to which it is a party. "Multiemployer Plan" means a Plan described in Section 4001(a)(3) of ERISA which covers employees of Borrower or any ERISA Affiliate. "Note" has the meaning specified in Section 2.05. "Obligations" has the meaning specified in Section 4.01. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Permitted Acquisitions" means any Acquisition if all of the following tests are satisfied: (1) the total compensation paid and/or Debt assumed (other than accounts payable to trade creditors for goods or services) in connection with any such Acquisition does not exceed Twenty Million Dollars ($20,000,000); (2) the Person or assets acquired are engaged in, or may be used in connection with, Existing Lines of Business; (3) at the time of and after giving effect to such Acquisition there are and shall be no Defaults or Events of Defaults; and (4) after giving effect to such proposed Acquisition the total compensation paid and/or Debt assumed (other than accounts payable to trade creditors for goods or services) in connection with all Acquisitions made during the fiscal year in which such proposed Acquisition is to be made does not exceed Twenty Million Dollars ($20,000,000). "Person" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority, or other entity of whatever nature. "Plan" means any plan established, maintained, or to which contributions have been made by Borrower or any ERISA Affiliate. "Prime Rate" means the rate of interest as announced by the Bank at its Principal Office as in effect from time to time as its prime commercial lending rate. "Prime Rate Loan" means the portions of the Loan when and to the extent the interest rate therefor is determined by the Prime Rate. "Principal Office" means Two Seventy Park Avenue, New York, New York 10017 or such other office designated by the Bank as its principal or head office. "Prohibited Transaction" means any transaction set forth in Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended from time to time. "QMA" means Quality Medi-Cal Adjudication, Incorporated, a California corporation. "Regulation D" means Regulation D of the Board of Governors, as the same may be amended or supplemented from time to time. "Regulatory Change" means, with respect to the Bank, any change after the date of this Agreement in United States Federal law, state law or foreign law or regulations (including, without limitation, Regulation D) or the adoption or making after such date of any interpretation, directive or request applying to a class of banks including the Bank of or under any United States Federal law, state law or foreign law or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "Reportable Event" means any of the events set forth in Section 4043 of ERISA. "Revolving Credit Facility" means Forty Million Dollars ($40,000,000). "Revolving Credit Facility (Loans)" means the Revolving Credit Facility less the Standby Letter of Credit Obligations less the aggregate sum of all terminations of the Revolving Credit Facility pursuant to Section 2.02. "Revolving Credit Facility (Standby Letters of Credit)" means the lesser of (1) Two Million Dollars ($2,000,000), or (2) the Revolving Credit Facility less the aggregate principal amount of all outstanding Loans less the aggregate sum of all terminations of the Revolving Credit Facility pursuant to Section 2.02. "Revolving Credit Facility Fee" has the meaning specified in Section 2.08. "Revolving Credit Facility Termination Date" means July 15, 1999. "Standby Letter of Credit" has the meaning specified in Section 3.01. "Standby Letter of Credit Commitment" has the meaning specified in Section 3.01. "Standby Letter of Credit Fees" has the meaning specified in Section 3.03. "Standby Letter of Credit Obligations" means at any time an amount equal to the sum of (1) the aggregate undrawn face amount of all outstanding Standby Letters of Credit, plus (2) the aggregate amount of all unreimbursed obligations on Standby Letters of Credit, plus (3) the aggregate amount of all overdrafts created to satisfy any of the foregoing obligations where all reductions in overdrafts shall first be applied to overdrafts created to satisfy obligations other than those listed above and then to those listed above. "Subscription Agreement" means the Subscription Agreement dated October 31, 1995 among Health Information Systems Corporation, Borrower, Welsh, Carson, Anderson & Stowe VI, L.P., WCAS Information Partners, L.P., WCAS Healthcare Partners, L.P., Health Systems Architects, Inc., WCA Management Corporation and the Several Persons Named in Schedule I thereto, as in effect on the Closing Date. "Subsidiary" means, as to any Person, a corporation, partnership, limited liability company, or other business entity of which shares of stock, securities or other ownership interest representing more than fifty percent (50%) of the ordinary voting power or more than fifty percent (50%) of the general partnership interest, are, at the time of which any determination is made, owned or controlled by such Person or one or more intermediaries, or both, of such Person, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. "Unused Revolving Credit Facility" means, on any date of determination, the difference, if any, between (1) the Revolving Credit Facility and (2) the sum of (a) the aggregate outstanding principal amount of all Loans plus (b) the aggregate face amount of all outstanding Standby Letters of Credit. SECTION 1.02. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP and all financial data submitted pursuant to this Agreement shall be prepared in accordance with such principles. ARTICLE II AMOUNT AND TERMS OF THE CREDITS SECTION 2.01. Loans. The Bank agrees, on the terms and conditions set forth in this Agreement, to make loans (the "Loans") to the Borrower on any Business Day during the period from the Closing Date up to but not including the Revolving Credit Facility Termination Date, provided that the aggregate principal amount of all such Loans outstanding at any time shall not exceed the Revolving Credit Facility (Loans) ("Loan Commitment"). The Loans may be: (1) a Prime Rate Loan; or (2) a LIBOR Loan; or (3) any combination of the foregoing, as determined by the Borrower and notified to the Bank in accordance with Section 2.03. Each type of Loan shall be made and maintained at the Bank's Applicable Lending Office for such type of Loan. Within the limits of the Revolving Credit Facility (Loans), the Borrower may borrow, make an optional prepayment pursuant to Section 2.07, and reborrow under this Section 2.01. SECTION 2.02. Reduction of Revolving Credit Facility. The Borrower shall have the right, upon at least one (1) Business Day's notice to the Bank, to terminate in whole or reduce in part the unused portion of the Revolving Credit Facility, provided that each partial reduction shall be in the amount of not less than Five Hundred Thousand Dollars ($500,000). SECTION 2.03. Notice and Manner of Borrowing; Minimum Amounts. Each LIBOR Loan and Prime Rate Loan shall be made on notice (each a "Borrowing Notice") from the Borrower to the Bank, which notice shall be given not later than 11:00 a.m., New York City time, on (1) the third Business Day prior to the making of any Loan to which the LIBOR Interest Rate applies, and (2) the Business Day of making of any Loan to which the Prime Rate applies. Each Notice of Borrowing must specify: (1) the date and amount of such Loan; (2) that the Loan will bear interest at (a) the Prime Rate, or (b) the LIBOR Interest Rate plus the Applicable Margin, and (3) in the case of Loans bearing interest at the LIBOR Interest Rate, the initial Interest Period applicable thereto. All Prime Rate Loans, and any conversions thereof pursuant to Section 2.04 below, shall be in the minimum amount of Five Hundred Thousand Dollars ($500,000) and in integral multiples of One Hundred Thousand Dollars ($100,000) and all LIBOR Loans, and any Conversions or Continuations thereof pursuant to Section 2.04 below, shall be in the minimum amount of One Million Dollars ($1,000,000) and in integral multiples thereof. Upon fulfillment of the applicable conditions set forth in Article V, the Bank will make funds available to the Borrower in immediately available funds by crediting the amount thereof to the Borrower's account with the Bank. SECTION 2.04. Interest Periods; Conversions; Renewals. In the case of each LIBOR Loan, the Borrower shall select an Interest Period of any duration in accordance with the definition of Interest Period in Section 1.01, subject to the following limitations; (1) no Interest Period may extend beyond the Revolving Credit Facility Termination Date; (2) no Interest Period shall have a duration less than one month, and if any such proposed Interest Period would otherwise be for a shorter period, such Interest Period shall not be available; and (3) if an Interest Period would end on a day which is not a Business Day, such Interest Period shall be extended to the next Business Day, unless, such Business Day would fall in the next calendar month, in which event such Interest Period shall end on the immediately preceding Business Day. There is no Interest Period for a Prime Rate Loan. Unless a Loan is accruing interest based upon the LIBOR Interest Rate plus the Applicable Margin, such Loan will accrue interest at the Prime Rate. To illustrate, if the Borrower does not convert a Prime Rate Loan into a LIBOR Loan, then such Loan will continue to be a Prime Rate Loan. The Borrower may elect from time to time to convert all or a part of one type of Loan into a Prime Rate or LIBOR Loan or to renew all or part of a LIBOR Loan by giving the Bank notice at least one (1) Business Day before conversion into a Prime Rate Loan, and at least three (3) Business Days before the conversion into or renewal of a LIBOR Loan, specifying (1) the renewal or conversion date; (2) the amount of the Loan to be converted or renewed; (3) in the case of conversions, the type of Loan to be converted into; and (4) in the case of renewals of or a conversion into LIBOR Loans the duration of the Interest Period applicable thereto; provided that LIBOR Loans can be converted only on the last day of the Interest Period for such Loan. All notices given under this Section 2.04 shall be irrevocable and shall be given not later than 11:00 a.m., New York City time, on the day which is not less than the number of Business Days specified above for such notice. If the Borrower shall fail to give the Bank the notice as specified above for the renewal or conversion of a LIBOR Loan prior to the end of the Interest Period with respect thereto, such LIBOR Loan shall automatically be converted into a Prime Rate Loan on the last day of the Interest Period for such Loan. SECTION 2.05. Interest. The Borrower shall pay interest to the Bank on the outstanding and unpaid principal amount of its Loans at a rate per annum as follows: (1) for a Prime Rate Loan at a rate equal to the Prime Rate; and (2) for a LIBOR Loan at a rate equal to the LIBOR Interest Rate plus the Applicable Margin. Any principal amount not paid when due (at maturity, by acceleration or otherwise) shall bear interest thereafter, payable on demand, at the Default Rate. The interest rate on each Prime Rate Loan shall change when the Prime Rate changes. Interest on each Loan shall not exceed the maximum amount permitted under applicable law and shall be calculated on the basis of a year of three hundred sixty (360) days for the actual number of days elapsed. Accrued interest shall be due and payable in arrears upon any payment of principal and on the first day of each month, commencing the first such date after the Closing Date, and interest accruing at the Default Rate shall be due and payable on demand. SECTION 2.06. Note. The Loans shall be evidenced by, and repaid with interest in accordance with, a single promissory note of the Borrower, in substantially the form of Exhibit A hereto (the "Note") duly completed. The Note shall (1) be in the principal amount of the Revolving Credit Facility, (2) be dated the Closing Date, (3) be payable to the Bank for the account of its applicable Lending Office and (4) mature as to principal on the Revolving Credit Facility Termination Date. The Bank is hereby authorized by the Borrower to endorse on the schedule attached to the Note the amount of each Loan, the type of the Loan and each renewal, conversion, continuation and payment of principal amount received by the Bank for the account of its Applicable Lending Office on account of the Loans, which endorsement shall, in the absence of manifest error, be conclusive as to the outstanding balance of the Loans made by the Bank; provided, however, that the failure to make such notation with respect to any Loan or renewal, conversion, continuation or payment shall not limit or otherwise affect the obligations of the Borrower under this Agreement or the Note. The Bank agrees that prior to any assignment of the Note it will endorse the schedule attached to the Note. SECTION 2.07. Optional Prepayments. The Borrower may, upon giving notice to the Bank prior to 11:00 a.m. of the day of the prepayment in the case of Prime Rate Loans, and at least three (3) Business Days' notice to each Bank in the case of LIBOR Loans, prepay the Note, in whole or in part with accrued interest to the date of such prepayment on the amount prepaid, provided that: (1) each partial prepayment shall be in a principal amount of not less than One Hundred Thousand Dollars ($100,000); and (2) LIBOR Loans may be prepaid only on the last day of the Interest Period for such Loan, unless the Borrower pays the Bank the Broken Funding Fee. SECTION 2.08. Fees. The Borrower shall pay to the Bank a commitment fee (the "Revolving Credit Facility Fee") on the daily average amount of the Unused Revolving Credit Facility for the period from and including the Closing Date to but excluding the Revolving Credit Facility Termination Date at a rate per annum equal to one-fifth of one percent (.20%). The accrued Revolving Credit Facility Fee shall be payable monthly in arrears on the first day of each calendar month, commencing the first such date after the Closing Date. SECTION 2.09. Method of Payment. The Borrower shall make each payment under this Agreement and under the Note not later than 11:00 A.M. (New York time) on the date when due in Dollars to the Bank for the account of its Applicable Lending Office. The Borrower hereby authorizes the Bank, if and to the extent payment is not made when due under this Agreement or under the Note, to charge from time to time against any account it maintains with the Bank any amount so due to the Bank. Except to the extent provided in this Agreement, whenever any payment to be made under this Agreement or under the Note shall be stated to be due on any day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall be included in the computation of the payment of interest, the Revolving Credit Facility Fee and any other fees that may be applicable hereunder. SECTION 2.10. Use of Proceeds. The proceeds of the Loans shall be used by the Borrower for working capital, equipment purchases, financing the purchase of Acquisitions and general corporate purposes; provided, however, no proceeds will be used for Acquisitions which are not Permitted Acquisitions. The Borrower will not, directly or indirectly, use any part of such proceeds for the purpose of purchasing or carrying any margin stock within the meaning of Regulation U of the Board of Governors or to extend credit to any Person for the purpose of purchasing of carrying any such margin stock. SECTION 2.11. Additional Costs. The Borrower shall pay directly to the Bank from time to time on demand such amounts as the Bank may determine to be necessary to compensate it for any increased costs which the Bank determines are attributable to its making or maintaining any LIBOR Loan, or its obligation to convert any Prime Rate Loan to a LIBOR Loan hereunder, or any reduction in any amount receivable by the Bank hereunder in respect of any of such LIBOR Loans or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), resulting from any Regulatory Change which: (1) changes the basis of taxation of any amounts payable to the Bank under this Agreement or the Note in respect of any of such LIBOR Loans (other than taxes imposed on or measured by the overall net income of the Bank or of its Applicable Lending Office for any of such LIBOR Loans by the jurisdiction in which the Bank has its principal office or such Applicable Lending Office); or (2) (other than to the extent of the LIBOR Reserve Requirement taken into account in determining the LIBOR Interest Rate at the commencement of the applicable Interest Period) imposes or modifies any reserve, special deposit, deposit insurance or assessment, minimum capital, capital ratio or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, the Bank (including any LIBOR Loans or any deposits referred to in the definition of "LIBOR Interest Rate" in Section 1.01 hereof), or any commitment of the Bank; or (3) imposes any other condition affecting this Agreement or the Note (or any of such extensions of credit or liabilities). Without limiting the effect of the provisions of the first paragraph of this Section 2.11, in the event that, by reason of any Regulatory Change, the Bank either (1) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits of other liabilities of the Bank which includes deposits by reference to which the LIBOR Interest Rate, is determined as provided in this Agreement or a category of extensions of credit or other assets of the Bank which includes loans based on the LIBOR Interest Rate, or (2) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then, if the Bank so elects by notice to the Borrower, the obligation of the Bank to make or continue, or to convert Loans into LIBOR Loans, shall be suspended until such Regulatory Change ceases to be in effect (in which case the provisions of Section 2.14 hereof shall be applicable). Without limiting the effect of the foregoing provisions of this Section 2.11 (but without duplication), the Borrower shall pay directly to the Bank from time to time on request such amounts as the Bank may determine to be necessary to compensate the Bank for any costs which it determines are attributable to the maintenance by the Bank (or any Applicable Lending Office), pursuant to any law or regulation or any interpretation, directive or request (whether or not having the force of law and whether in effect on the date of this Agreement or thereafter) of any court or governmental or monetary authority of capital in respect of any Loan or the Revolving Credit Facility, such compensation to include, without limitation, an amount equal to any reduction of the rate of return on assets or equity of the Bank (or any Applicable Lending Office) to a level below that which the Bank (or any Applicable Lending Office) could have achieved but for such law, regulation, interpre- tation, directive or request. Determinations and allocations by the Bank for purposes of this Section 2.11 of the effect of any Regulatory Change pursuant to the first or second paragraph of this Section 2.11 or of the effect of capital maintained pursuant to the third paragraph of this Section 2.11, on its costs or rate of return of maintaining the Loans or on amounts receivable by it in respect of the Loans, and the amounts required to compensate the Bank under this Section 2.11, shall be conclusive absent manifest error. SECTION 2.12. Limitation on Types of Loans. Anything herein to the contrary notwithstanding, if, on or prior to the determination of the LIBOR Interest Rate for any Interest Period the Bank determines (which determination shall be conclusive) that (1) the relevant rates of interest referred to in the definition of "LIBOR Interest Rate" in Section 1.01 hereof upon the basis of which the rate of interest for LIBOR Loans, for such Interest Period is to be determined do not adequately cover the cost to the Bank of making or maintaining such LIBOR Loans for such Interest Period; or (2) quotations of interest rates for the relevant deposits referred to in the definition of LIBOR Interest Rate are not being provided in the relevant amounts or for the relevant maturities for purposes of determining the rate of interest on a LIBOR Loan as provided in this Agreement; then the Bank shall give the Borrower prompt notice thereof, and so long as such condition remains in effect, the Bank shall be under no obligation to make LIBOR Loans, convert Loans into LIBOR Loans, or continue LIBOR Loans, and the Borrower shall, on the last day(s) of the then current Interest Period(s) for the outstanding LIBOR Loans either prepay such LIBOR Loans, or convert such LIBOR Loans, into a Prime Rate Loan. SECTION 2.13. Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for the Bank or its Applicable Lending Office to honor its obligation to make or maintain LIBOR Loans hereunder or convert Loans into LIBOR Loans, then the Bank shall promptly notify the Borrower thereof and the Bank's obligation to make or continue, or to convert Loans into LIBOR Loans, shall be suspended until such time as the Bank may again make and maintain LIBOR Loans (in which case the provisions of Section 2.14 hereof shall be applicable). SECTION 2.14. Treatment of Affected Loans. If the obligations of the Bank to make or continue LIBOR Loans, or to convert Loans into LIBOR Loans are suspended pursuant to Section 2.11 or 2.13 hereof (LIBOR Loans so affected being herein called "Affected Loans") the Bank's Affected Loans shall be automatically converted into Prime Rate Loans on the last day(s) of the then current Interest Period(s) for the Affected Loans (or, in the case of a conversion required by Section 2.11 or 2.13, on such earlier date as the Bank may specify to the Borrower). To the extent that the Bank's Affected Loans have been so converted, all payments and prepayments of principal which would otherwise be applied to the Bank's Affected Loans shall be applied instead to its Prime Rate Loans. All Loans which would otherwise be made or continued by the Bank as LIBOR Loans shall be made or continued instead as Prime Rate Loans and all Prime Rate Loans of the Bank which would otherwise be converted into LIBOR Loans shall remain as Prime Rate Loans. SECTION 2.15. Risk-Based Capital. In addition to the rights granted under any other provision of this Agreement, in the event that the Bank determines that (1) compliance with any judicial, administrative, or other governmental interpretation of any law or regulation or (2) compliance by the Bank or any corporation controlling the Bank with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law) has the effect of requiring an increase in the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank, and the Bank determines that such increase is based upon its obligations hereunder, and other similar obligations, the Borrower shall pay to the Bank, such additional amount as shall be certified by the Bank to be the amount allocable to the Bank's obligations to the Borrower hereunder. The Bank will notify the Borrower of any event occurring after the date of this Agreement that will entitle the Bank to compensation pursuant to this Section 2.15 as promptly as practicable after it obtains knowledge thereof and determines to request such compensation. The Borrower agrees to pay compensation pursuant to this Section 2.15 within thirty (30) days after the Bank notifies the Borrower that the Bank is entitled to compensation under this Section 2.15. Determinations by the Bank for purposes of this Section 2.15 of the effect of any increase in the amount of capital required to be maintained by the Bank and of the amount allocable to the Bank's obligations to the Borrower hereunder shall be conclusive, absent manifest error. SECTION 2.16. Certain Compensation. The Borrower shall pay to the Bank, upon the request of the Bank, such amount or amounts as shall be sufficient (in the reasonable opinion of the Bank) to compensate it for any loss, cost or expense which the Bank determines is attributable to: (1) any payment, prepayment, conversion or continuation of a LIBOR Loan made by the Bank on a date other than the last day of an Interest Period for such Loan whether by reason of acceleration or otherwise; or (2) any failure by the Borrower for any reason to borrow, convert or continue a LIBOR Loan to be borrowed, converted or continued by the Bank on the date specified therefor in the relevant notice issued by the Borrower. Without limiting the foregoing, such compensation shall include an amount equal to the Broken Funding Fee. A determination of the Bank as to the amounts payable pursuant to the prior paragraph of this Section 2.16 shall be conclusive absent manifest error. ARTICLE III LETTERS OF CREDIT SECTION 3.01. Standby Letters of Credit. Subject to the terms and conditions of this Agreement, the Bank agrees to issue standby or performance letters of credit ("Standby Letters of Credit") for the account of the Borrower from time to time during the period from the Closing Date to the Revolving Credit Facility Termination Date, provided that the aggregate face and principal amount of all Standby Letter of Credit Obligations outstanding at any time does not exceed the Revolving Credit Facility (Standby Letter of Credit) ("Standby Letter of Credit Commitment"). In addition, the Bank will not be required to issue a Standby Letter of Credit with a maturity date (1) more than three hundred sixty-five (365) days from the date of issuance of such Standby Letter of Credit, or (2) on or after the Revolving Credit Facility Termination Date. SECTION 3.02. Application for Standby Letter of Credit. The Bank will not be required to issue a Standby Letter of Credit unless the Borrower submits to the Bank an Application (in the Bank's then current form for standby or performance letters of credit) for such Standby Letter of Credit. In addition to the other terms and provisions of this Agreement, including but not limited to those set forth in this Article, each Standby Letter of Credit will be subject to the terms and provisions of the Application submitted in connection with such Standby Letter of Credit, provided, however, that to the extent there are any inconsistencies between this Agreement and the Application the terms of this Agreement apply. SECTION 3.03. Standby Letter of Credit Fees and Expenses. The Borrower will pay the Bank, on demand, the Bank's issuance and administrative fees and all charges, costs, and expenses paid or incurred by the Bank in connection with each Standby Letter of Credit. Unless otherwise agreed, all issuance and administrative fees payable under this Agreement shall be at the rates customarily charged by the Bank at that time in like circumstances. In addition to the items noted in the first paragraph of this Section, the Borrower shall pay to the Bank an annual letter of credit fee equal to one percent (1%) of the face amount of each Standby Letter of Credit ("Standby Letter of Credit Fee"). Such Standby Letter of Credit Fee shall accrue from the date of issuance of each such Standby Letter of Credit and be paid quarterly, in arrears, on each Quarterly Date after the issuance of such Standby Letter of Credit and on the Revolving Credit Facility Termination Date. Provided, however, the percentage used to compute the Standby Letter of Credit Fee will be increased by two percent (2%) during each period a Default or Event of Default exists. In addition to the fees and amounts otherwise payable by Borrower under this Section, the Borrower shall pay to the Bank on demand such amounts as the Bank, in its sole discretion, determines are necessary to compensate it for any cost attributable to its providing or maintaining its Standby Letter of Credit Commitment, or its issuing or having outstanding any Standby Letter of Credit, resulting from the application of any Law or regulation applicable to the Bank regarding any reserve, assessment, capital adequacy or similar requirements relating to letters of credit or the reimbursement agreements with respect thereto or to similar liabilities or assets of the Bank, whether existing at the time of issuance of the Standby Letter of Credit or adopted thereafter. The Borrower acknowledges that there are various methods of allocating costs to the Standby Letters of Credit and agrees that the Bank's allocation for purposes of determining the costs referred to in this paragraph shall be conclusive and binding upon the Borrower, provided such allocation is made by the Bank in good faith. SECTION 3.04. Reimbursement Obligation. The Borrower will pay the Bank, on demand, at 1411 Broadway, Fifth Floor, New York, New York 10018 in immediately available funds, the amount required to reimburse the Bank in respect of the Bank's payment of each Instrument. If not reimbursed on the date of the Bank's payment of an Instrument then such reimbursement shall be made with interest at the Default Rate on Prime Rate Loans from the date of the Bank's payment of such Instrument to the date of the Borrower's reimbursement of the Bank. If the Instrument is in foreign currency, such reimbursement shall be in United States currency at the Bank's selling rate for cable transfers to the place of payment of the Instrument current on the date of payment or of the Bank's settlement of its obligation, as the Bank may require. If, for any cause, on the date of payment or settlement, as the case may be, there is no selling rate or other rate of exchange generally current in New York for effecting such transfers, the Borrower will pay the Bank on demand an amount in United States currency equivalent to the Bank's actual cost of settlement of its obligation however or whenever the Bank shall make such settlement, with interest at the Prime Rate from the date of settlement to the date of payment. The Borrower will comply with all governmental exchange regulations now or hereafter applicable to each Standby Letter of Credit or Instrument or payments related thereto and will pay the Bank, on demand, in Dollars, such amount as the Bank may be or may have been required to expend on account of such regulations. The Bank may debit any account or accounts maintained by the Borrower with any office of the Bank or any of its subsidiaries or affiliates (now or in the future) and apply the proceeds to the payment of any and all amounts owed by the Borrower to the Bank under this Article. ARTICLE IV GUARANTY SECTION 4.01. Guaranty. Each Guarantor hereby jointly and severally irrevocably, absolutely and unconditionally guarantees to the Bank and its successors, endorsees, transferees and assigns the prompt and complete payment by the Borrower, as and when due and payable (whether at stated maturity or by required prepayment, acceleration, demand or otherwise), of all indebtedness, obligations and liabilities of Borrower to the Bank now existing or hereafter incurred under or arising out of or in connection with the Loan Documents, whether for principal, interest, reimbursement obligations, fees, expenses or otherwise and all other obligations of the Borrower to the Bank including but not limited to all obligations under the Loans and Standby Letters of Credit (all such indebtedness, obligations, and liabilities being herein called the "Obligations"); and agrees to pay any and all expenses (including counsel fees and expenses) which may be paid or incurred by the Bank in collecting any or all of the Obligations and/or enforcing any rights under any of the Loan Documents or under the Obligations (the "Guaranty"). SECTION 4.02. Guarantor's Obligations Unconditional. Each Guarantor hereby guarantees that the Obligations will be paid strictly in accordance with their terms, including the terms of the Loan Documents, regardless of any Law, regulation or order now or hereafter in effect in any jurisdiction affecting any such terms or the rights of the Bank with respect thereto. The obligations and liabilities of each Guarantor under this Guaranty shall be absolute and unconditional irrespective of: (1) any lack of validity or enforceability of any of the Obligations, any Loan Documents, or any agreement or instrument relating thereto; (2) any change in the time, manner or place of payment of, or in any other term in respect of, all or any of the Obligations, or any other amendment or waiver of or consent to any departure from any Loan Documents or any other document related to such Obligations; (3) any exchange or release of, or non-perfection of any Lien on or in, any collateral, or any release or amendment or waiver of or consent to any departure from any other guaranty, for all or any of the Obligations; or (4) any other circumstances which might otherwise constitute a defense available to, or a discharge of, the Borrower or any other guarantor in respect of the Obligations or each Guarantor in respect of this Guaranty. This Guaranty is a continuing guaranty and shall remain in full force and effect until: (1) the payment in full of all the Obligations after the Revolving Credit Facility Termination Date, and (2) the payment of the other expenses to be paid by the Guarantor pursuant hereto. This Guaranty shall continue to be effective or shall be reinstated, as the case may be, if at any time any payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be returned by the Bank upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower or otherwise, all as though such payment had not been made. The obligations and liabilities of each Guarantor under this Guaranty shall not be conditioned or contingent upon the pursuit by the Bank or any other Person at any time of any right or remedy against the Borrower or any other Person which may be become liable in respect of all or any part of the Obligations or against any collateral or security or guarantee therefor or right of setoff with respect thereto. Each Guarantor hereby consents that, without the necessity of any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Obligations made by the Bank may be rescinded by the Bank and any of the Obligations continued after such rescission. SECTION 4.03. Waivers. Each Guarantor hereby waives: (1) promptness and diligence; (2) notice of or proof of reliance by the Bank upon this Guaranty or acceptance of this Guaranty; (3) notice of the incurrence of any Obligations by the Borrower or the renewal, extension or accrual of any Obligation; (4) notice of any actions taken by the Bank or the Borrower or any other party under any Loan Document, or any other agreement or instrument relating thereto; (5) all other notices, demands and protests, and all other formalities of every kind in connection with the enforcement of the Obligations or of the obligations of each Guarantor hereunder, the omission of or delay in which, but for the provisions of this Section 4.03, might constitute grounds for relieving any Guarantor of its obligations hereunder; and (6) any requirement that the Bank protect, secure, perfect or insure any Lien or any property subject thereto or exhaust any right or take any action against the Borrower or any other Person or any collateral. SECTION 4.04. Subrogation. Each Guarantor hereby waives any rights which it may acquire by way of subrogation under this Guaranty, whether acquired by any payment made hereunder, by any setoff or application of funds of the Guarantor, by the Bank or otherwise. ARTICLE V CONDITIONS PRECEDENT SECTION 5.01. Conditions Precedent to the Initial Loan or Standby Letter of Credit. The obligation of the Bank to enter into this Agreement and to make the initial Loan and to issue the initial Standby Letter of Credit is subject to the condition precedent that the Bank shall have received on or before the Closing Date each of the following documents, in form and substance satisfactory to the Bank and its counsel, and each of the following requirements shall have been fulfilled: (1) The Note. The Note duly executed by the Borrower; (2) Evidence of Due Organization of Borrower and each Guarantor. Certified copies, dated the Closing Date, of the Certificate of Incorporation and By-Laws of the Borrower and each Guarantor and all amendments thereto; (3) Evidence of All Corporate Action of the Borrower and each Guarantor. Certified copies, dated the Closing Date, of all corporate action taken by the Borrower and each Guarantor, including resolutions of its Board of Directors, authorizing the execution, delivery, and performance of the Loan Documents to which it is a party and each document to be delivered pursuant to this Agreement; (4) Incumbency and Signature Certificate of the Borrower and each Guarantor. A certificate, dated the Closing Date, of the Secretary of the Borrower and each Guarantor, certifying the names and true signatures of the officers of the Borrower or each Guarantor, as the case may be, authorized to sign the Loan Documents to which it is a party and the other documents to be delivered pursuant to this Agreement; (5) Good Standing Certificates. A certificate, dated within ten (10) days of the Closing Date, from the Secretary of State (or other appropriate official) of the jurisdiction of incorporation of the Borrower and each Guarantor certifying as to the due incorporation and good standing of the Borrower or such Guarantor, as the case may be, and certificates, dated within five (5) days of the Closing Date, from the Secretary of State (or other appropriate official) of each other jurisdiction where the Borrower and each Guarantor is required to be qualified to conduct business, certifying that the Borrower or such Guarantor, as the case may be, is duly qualified to do such business and is in good standing in such state; (6) Opinion of Counsel. A favorable opinion of Messrs. Coleman & Rhine, LLP counsel for the Borrower and each Guarantor, in substantially the form of Exhibit B and as to such other matters as the Bank may reasonably request; (7) Financial Advisory Fee. Payment in full of the Financial Advisory Fee; (8) Legal Fees. Dewey Ballantine has been paid in full for all legal fees, costs and expenses incurred in connection with the preparation of the Loan Documents; and (9) Additional Documentation. The Bank shall have received such other approvals or documents as the Bank may reasonably request. SECTION 5.02. Conditions Precedent to All Loans and All Standby Letters of Credit. The obligations of the Bank to provide each Loan (including the initial Loan) and to issue each Standby Letter of Credit (including the initial Standby Letter of Credit) shall be subject to the further conditions precedent that on the date of providing such Loan or issuing such Standby Letter of Credit, as the case may be: (1) The following statements shall be true: (a) all the representations and warranties contained in each of the Loan Documents are correct on and as of the date of providing such Loan or issuing such Standby Letter of Credit, as the case may be, as though made on and as of such date; and (b) no Default or Event of Default has occurred and is continuing, or could result from providing such Loan or issuing such Standby Letter of Credit, as the case may be; and (2) The Bank shall have received such other approvals, opinions or documents as the Bank may reasonably request. SECTION 5.03. Deemed Representation. Each request for a Loan or a Standby Letter of Credit and, in the case of a Loan, acceptance by the Borrower of any proceeds of such Loan or in the case of a Standby Letter of Credit, issuance of such Standby Letter of Credit shall constitute a representation and warranty that the statements contained in Section 5.02(1) are true and correct both on the date of such notice and as of the date of the providing of such Loan or issuing such Standby Letter of Credit, as the case may be. ARTICLE VI REPRESENTATIONS AND WARRANTIES The Borrower and each Guarantor represents and warrants to the Bank that: SECTION 6.01. Incorporation, Good Standing and Due Qualification. The Borrower and each Guarantor is a corporation duly incorporated, validly existing, and in good standing under the laws of the jurisdiction of its incorporation; has the corporate power and authority to own its assets and to transact the business in which it is now engaged or proposed to be engaged in; and is duly qualified as a foreign corporation and in good standing under the laws of each other jurisdiction in which such qualification is required. SECTION 6.02. Corporate Power and Authority. The execution, delivery, and performance by the Borrower and each Guarantor of the Loan Documents to which each is a party have been duly authorized by all necessary corporate action, and does not and will not: (1) require any consent or approval of the stockholders of the Borrower or any Guarantor; (2) contravene the Borrower's or any Guarantor's charter or bylaws; (3) violate any provision of any Law, rule, regulation (including, without limitation, Regulation U of the Board of Governors), order, writ, judgment, injunction, decree, award or Governmental Approval presently in effect having applicability to the Borrower or any Guarantor; (4) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease, or instrument to which the Borrower or any Guarantor is a party or by which it or its properties may be bound or affected; (5) result in, or require, the creation or imposition of any Lien, upon or with respect to any of the properties now owned or hereafter acquired by the Borrower or any Guarantor other than Liens in favor of the Bank; or (6) cause the Borrower or any Guarantor to be in default under any such law, rule, regulation, order, writ, judgment, injunction, decree, award or Governmental Approval or any such indenture or loan or credit agreement or other agreement, lease or instrument. Except as required pursuant to the Loan Documents no authorization, approval or other action by, and no notice to or filing with, any Governmental Authority or regulatory body is required for the due execution, delivery and performance by the Borrower or any Guarantor of the Loan Documents to which it is a party. SECTION 6.03. Legally Enforceable Agreement. This Agreement is, and each of the other Loan Documents when executed and delivered under this Agreement will be, legal, valid, and binding obligation of the Borrower or the Guarantor, enforceable against the Borrower or the Guarantor, as the case may be, in accordance with their respective terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, and other similar laws affecting creditors' rights generally on the exercise of judicial discretion with respect to the availability of equitable remedies. SECTION 6.04. Financial Statements. The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as at October 31, 1995, and the related consolidated statement of operations, consolidated statements of shareholder's equity and consolidated statement of cash flow, of the Borrower and its Consolidated Subsidiaries for the fiscal year then ended, and the accompanying footnotes, together with the report thereon, dated November 21, 1995 (except as to note 17, which is as of December 15, 1995 and note 1(f) which is as of May 6, 1996), of KPMG Peat Marwick LLP, independent certified public accountants, copies of which have been furnished to the Bank, are complete and correct and fairly present the financial condition of the Borrower and its Consolidated Subsidiaries as at such dates and the results of the operations of the Borrower and its Consolidated Subsidiaries for the periods covered by such statements, all in accordance with GAAP consistently applied, and since October 31, 1995, there has been no material adverse change in the condition (financial or otherwise), business, or operations of the Borrower or any Consolidated Subsidiary. The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of January 31, 1996 (as restated as of April 28, 1996), and the related consolidated statement of operations, consolidated statement of shareholder's equity and consolidated statement of cash flow, of the Borrower and its Consolidated Subsidiaries for the three (3) month period then ended, copies of which have been furnished to the Bank, are complete and correct and fairly present the financial condition of the Borrower and the Consolidated Subsidiaries as at such dates and the results of operations of the Borrower and its Consolidated Subsidiary for the period covered by such statements, all in accordance with GAAP consistently applied. There are no liabilities of the Borrower or any Consolidated Subsidiary, fixed or contingent, which are material but are not reflected in the financial statements or in the notes thereto, other than liabilities arising in the ordinary course of business since October 31, 1995. No information, exhibit, or report furnished by the Borrower to the Bank in connection with the negotiation of this Agreement contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statements contained therein not materially misleading. SECTION 6.05. Labor Disputes and Acts of God. Neither the business nor the properties of the Borrower or any of its Subsidiary or any Guarantor are affected by any fire, explosion, accident, strike, lockout, or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy, or other casualty (whether or not covered by insurance), materially and adversely affecting such Business or properties on the operation of the Borrower or any Subsidiary or any Guarantor. SECTION 6.06. Other Agreements. Neither the Borrower nor any of its Subsidiary nor any Guarantor is a party to any indenture, loan, or credit agreement, or to any lease or other agreement or instrument or subject to any charter or corporate restriction which could result in a Material Adverse Change. Neither the Borrower nor any of its Subsidiaries nor any Guarantor is in default in any material respect in the performance, observance, or fulfillment of any of the obligations, covenants, or conditions contained in any agreement or instrument which could result in a Material Adverse Change. SECTION 6.07. Litigation. There is no pending or threatened action or proceeding against or affecting the Borrower or any of its Subsidiaries or any Guarantor before any court, governmental agency, or arbitrator, which could be adversely determined and if so determined could, in any one case or in the aggregate, result in a Material Adverse Change. SECTION 6.08. No Defaults on Outstanding Judgments or Orders. The Borrower and each Guarantor (1) have satisfied all judgments, and (2) are not in default with respect to any judgment, writ, injunction, decree, rule, or regulation of any court, arbitrator, or federal, state, municipal, or other Governmental Authority, commission, board, bureau, agency, or instrumentality, domestic or foreign. SECTION 6.09. Ownership and Liens. The Borrower, each of its Subsidiaries and each Guarantor, each has title to, or valid leasehold interests in, all of its properties and assets, real and personal, and none of the properties and assets owned by the Borrower or any of its Subsidiary or any Guarantor and none of their leasehold interests are subject to any Lien, except such as may be permitted pursuant to Section 8.01 of this Agreement. SECTION 6.10. Subsidiaries and Ownership of Stock. The Guarantors are the only Subsidiaries of the Borrower. All of the outstanding capital stock of each Guarantor has been validly issued, is entirely owned by the Borrower, fully paid and non-assessable, and is owned by the Borrower free and clear of all Liens. SECTION 6.11. ERISA. The Borrower and each of its Subsidiaries and each Guarantor is in compliance in all respects with all applicable provisions of ERISA; neither a Reportable Event nor a Prohibited Transaction has occurred and is continuing with respect to any Plan; no notice of intent to terminate a Plan has been filed nor has any Plan been terminated; no circumstances exist which constitute grounds under Section 4042 of ERISA on which the PBGC could institute proceedings to terminate, or appoint a trustee to administrate, a Plan, nor has the PBGC instituted any such proceedings; neither the Borrower nor any Guarantor nor any ERISA Affiliate has completely or partially withdrawn under Section 4201 or 4204 of ERISA from a Multiemployer Plan; the Borrower, each Guarantor and each ERISA Affiliate has met its minimum funding requirements under ERISA with respect to all of their Plans and the present fair market value of all Plan assets exceeds the present value of all vested benefits under each Plan, as determined on the most recent valuation date of the Plan and in accordance with the provisions of ERISA and the regulations thereunder for calculating the potential liability of the Borrower or any Guarantor or any ERISA Affiliate to the PBGC or the Plan under Title IV of ERISA; and neither the Borrower nor any Guarantor nor any ERISA Affiliate has incurred any liability to the PBGC under ERISA. SECTION 6.12. Operation of Business. The Borrower and its Subsidiaries and each Guarantor possess all licenses, permits, franchises, patents, copyrights, trademarks, and trade names, or rights thereto, to conduct their respective businesses substantially as now conducted and as presently proposed to be conducted, and neither the Borrower nor its Subsidiaries nor any Guarantor is in violation of any valid rights of others with respect to any of the foregoing. SECTION 6.13. Taxes. The Borrower and each of its Subsidiaries and each Guarantor have filed all tax returns (federal, state and local) required to be filed and have paid all federal, state, local and foreign taxes, assessments and governmental charges and levies thereon required to be paid through the date hereof, including interest and penalties. SECTION 6.14. Subscription Agreement. As of the Closing Date, the Subscription Agreement is in the form of Exhibit C. ARTICLE VII AFFIRMATIVE COVENANTS So long as the Note remains unpaid or any Standby Letter of Credit Obligation shall remain outstanding or the Bank shall have any Commitment under this Agreement, or any other amount is owing by Borrower to Bank under any Loan Document, the Borrower will: SECTION 7.01. Maintenance of Existence. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its corporate existence, and, good standing in the jurisdiction of its incorporation, and qualify and remain qualified, and cause each of its Subsidiaries to qualify and remain qualified, as a foreign corporation, as the case may be, in each jurisdiction in which the failure to so qualify could result in a Material Adverse Change. SECTION 7.02. Maintenance of Records. Keep, and cause each of its Subsidiaries to keep, adequate records and books of account, in which complete entries will be made in accordance with GAAP consistently applied for all reporting periods, reflecting all financial transactions of the Borrower and its Subsidiaries. SECTION 7.03. Maintenance of Properties. Maintain, keep, and preserve and cause each of its Subsidiaries to maintain, keep and preserve, all of its properties (tangible and intangible) necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted. SECTION 7.04. Conduct of Business. Continue, and cause each of its Subsidiaries to continue, to engage in Existing Lines of Business. SECTION 7.05. Maintenance of Insurance. Maintain, and cause each of its Subsidiaries to maintain, insurance policies with financially sound and reputable insurance companies or associations in such amounts and covering such risks as are usually carried by companies engaged in the same or a similar business and similarly situated and such other insurance as reasonably required by the Bank, which insurance may provide for reasonable deductibility from coverage thereof. SECTION 7.06. Compliance With Laws. Comply, and cause each of its Subsidiaries to comply, in all respects with all applicable Laws, rules, regulations, orders and Governmental Approvals, such compliance to include, without limitation, paying before the same become delinquent all taxes, assessments, and governmental charges imposed upon it or upon its property, except to the extent such taxes, assessments and governmental charges are the subject of a Good Faith Contest. Without limiting the generality of the foregoing paragraph, comply, and cause each of its Subsidiaries to comply, in all respects with all applicable Environmental Laws and immediately pay or cause to be paid all costs and expenses incurred in connection with such compliance. SECTION 7.07. Right of Inspection. At any reasonable time and from time to time upon reasonable notice, permit the Bank or any agent or representative thereof to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Borrower and any Subsidiary of the Borrower to discuss the affairs, finances, and accounts of the Borrower and any Subsidiary of the Borrower with any of their respective officers and directors and independent accountants. SECTION 7.08. Reporting Requirements. Furnish to the Bank: (1) Borrower's Quarterly Financial Statements. As soon as available and in any event within sixty (60) days after the end of the first, second and third quarterly accounting periods of each fiscal year of the Borrower, the consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the last day of such quarterly period and the related consolidated statements of operations, cash flows and changes in shareholders' equity of the Borrower and its Consolidated Subsidiaries for each quarterly period and (in the case of second and third quarterly periods) for the portion of the fiscal year ending with the last day of each quarterly period, in each case setting forth in comparative form corresponding unaudited consolidated figures from the preceding fiscal year, all in reasonable detail and all prepared in accordance with GAAP consistently applied and certified by the chief financial officer of the Borrower (subject to year-end adjustments); (2) Borrower's Annual Financial Statements. As soon as available and in any event within ninety (90) days after the end of each fiscal year of the Borrower, the consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of operations, cash flows and changes in shareholders' equity of the Borrower and its Consolidated Subsidiaries for such fiscal year and stating in comparative form the consolidated figures for the corresponding date and period in the previous fiscal year, all in reasonable detail and all prepared in accordance with GAAP consistently applied, accompanied by an opinion on such consolidated financial statements acceptable to the Bank by an independent certified public accountants selected by the Borrower and acceptable to the Bank; (3) Management Letters. Promptly upon receipt thereof, copies of any reports submitted to the Borrower or any of its Consolidated Subsidiaries by independent certified public accountants in connection with the examination of the financial statements of the Borrower or any of its Consolidated Subsidiaries made by such accountants; (4) Certificate of No Default. Within sixty (60) days after the end of each of the first three quarters of each fiscal year and within ninety (90) days of the end of each fiscal year of the Borrower, a certificate of the chief financial officer of the Borrower (a) certifying that no Default or Event of Default has occurred and is continuing, or if a Default or Event of Default has occurred and is continuing a statement as to the nature thereof and the action which is proposed to be taken with respect thereto; and (b) with computations demonstrating compliance with the covenants contained in Article IX; (5) SEC and Other Reports. Promptly upon their becoming publicly available, a copy of each report (including Form 8-K, 10-K, and 10-Q), proxy statement and registration statement or prospectus relating to securities of the Borrower filed by Borrower with or delivered to any securities exchange, the Securities and Exchange Commission or any successor agency; (6) Notice of Litigation. Promptly after the commencement thereof, notice of all actions, suits, and proceedings before any court or governmental department, commission, board, bureau, agency, or instrumentality, domestic or foreign, affecting the Borrower or any of its Subsidiaries which, if determined adversely to the Borrower or any of its Subsidiaries, could result in a Material Adverse Change; (7) Notice of Defaults and Events of Default. As soon as possible and in any event within seven (7) days after any officer of the Borrower or any of its Subsidiaries has knowledge of the occurrence of each Default or Event of Default, a written notice setting forth the details of such Default or Event of Default and the action which is proposed to be taken by the Borrower and its Subsidiaries with respect thereto; (8) ERISA Reports. As soon as possible and in any event within seven (7) days after the Borrower or any of its Subsidiaries knows or has reason to know that any Reportable Event or Prohibited Transaction has occurred with respect to any Plan or that the Borrower or any of its Subsidiaries has instituted or will institute proceedings under Title IV of ERISA to terminate any Plan, the Borrower, will deliver to each Bank a certificate of the chief financial officer of the Borrower, setting forth details as to such Reportable Event or Prohibited Transaction or Plan termination and the action the Borrower and its Subsidiaries proposes to take with respect thereto; (9) Reports to Other Creditors. Promptly after the furnishing thereof, copies of any statement or report furnished by the Borrower or any of its Subsidiaries to any other party pursuant to the terms of any indenture, loan, or credit or similar agreement and not otherwise required to be furnished to the Bank pursuant to any other clause of this Section 7.09; (10) Environmental. Promptly upon receipt thereof, copies of all Environmental Notices received by the Borrower or any of its Subsidiaries; (11) Material Adverse Change. As soon as possible and in any event within seven (7) days after the occurrence of any event or circumstance which could result in or has resulted in a Material Adverse Change, written notice thereof; (12) Acquisitions. As soon as possible (a) notice of each proposed Acquisition, and (b) information verifying that such Acquisition is a Permitted Acquisition; and (13) General Information. Such other information respecting the condition or operations, financial or otherwise, of the Borrower or any of its Subsidiaries as the Bank may from time to time reasonably request. SECTION 7.09. Transactions with HHL. Conduct all transactions, business, leases, or other financial dealings with HHL on an arms length basis. SECTION 7.10. New Subsidiaries. Each of the following conditions shall be satisfied by the Borrower with respect to each Subsidiary formed or acquired on or after the Closing Date, except for a Subsidiary formed for the purpose of making an Acquisition but such exception shall only apply to such Subsidiary as long as such Subsidiary does not own any assets used in connection with the operation of a business: (a) the Bank shall have received a Guaranty Agreement in a form acceptable to the Bank in its sole discretion duly executed by such Subsidiary pursuant to which such Subsidiary shall agree to be bound by the terms of this Agreement applicable to a Subsidiary and a Guarantor; (b) the Bank shall have received a certificate of the Secretary or Assistant Secretary of such Subsidiary attesting to the certificate of incorporation and bylaws of such Subsidiary and all amendments thereto and to all corporate action taken by such Subsidiary, including resolutions of its Board of Directors authorizing the execution, delivery and performance of its Guaranty Agreement and any other documents executed in connection therewith; and (c) the Bank shall have received a favorable opinion of counsel to such Subsidiary covering all of the matters covered by (a) and (b) above, and as to such other matters as the Bank may reasonably request. ARTICLE VIII NEGATIVE COVENANTS So long as the Note remains unpaid or any Standby Letter of Credit Obligation shall remain outstanding or the Bank shall have any Commitment under this Agreement or any other amount is owing by Borrower to Bank under any Loan Document the Borrower will not: SECTION 8.01. Liens. Create, incur, assume, or suffer to exist, or permit any Subsidiary to create, incur, assume, or suffer to exist, any Lien upon or with respect to any of its properties now owned or hereafter acquired, except: (1) Liens for taxes or assessments or other government charges or levies if not yet due and payable or, if due and payable, if they are the subject of a Good Faith Contest; (2) Liens imposed by law, such as mechanics', materialmen's, landlords', warehousemen's and carriers' Liens, and other similar Liens, securing obligations incurred in the ordinary course of business which are not past due for more than ninety (90) days; (3) Liens under workers' compensation, unemployment insurance, Social Security, or similar legislation; (4) Liens, deposits, or pledges to secure the performance of bids, tenders, contracts (other than contracts for the payment of money), leases (permitted under the terms of this Agreement), public or statutory obligations, surety, stay, appeal, indemnity, performance or other similar bonds, or other similar obligations arising in the ordinary course of business; (5) Easements, rights-of-way, restrictions, and other similar encumbrances which, in the aggregate, do not materially interfere with the occupation, use, and enjoyment by the Borrower or any Subsidiary of the Borrower of the property or assets encumbered thereby in the normal course of its business or materially impair the value of the property subject thereto; (6) Purchase-money Liens on equipment hereafter acquired or the assumption of any Lien on equipment existing at the time of such acquisition, or a Lien incurred in connection with any conditional sale or other title retention agreement relating to equipment or a Capital Lease of equipment, provided that: (a) Any equipment subject to any of the foregoing is acquired by the Borrower or its Subsidiary in the ordinary course of its business and the Lien on any such property is created contemporaneously with such acquisition; (b) The obligation secured by any Lien so created, assumed, or existing shall not exceed one hundred percent (100%) of the lesser of cost or fair market value as of the time of acquisition of the property covered thereby; and (c) Each such Lien shall attach only to the equipment so acquired and fixed improvements thereon. SECTION 8.02. Debt. Create, incur, assume, or suffer to exist, or permit any Subsidiary to create, incur, assume, or suffer to exist, any Debt, except: (1) Debt of the Borrower under this Agreement or the Note; (2) Any Debt provided by the Bank to the Borrower or any of its Subsidiaries; (3) Accounts payable to trade creditors for goods or services which are not aged more than one hundred twenty (120) days from billing date and current operating liabilities (other than for borrowed money) which are not more than ninety (90) days past due, in each case incurred in the ordinary course of business and paid within the specified time, unless the subject of a Good Faith Contest; and (4) Debt of the Borrower secured by purchase- money Liens permitted by Section 7.01(6). SECTION 8.03. Mergers, Etc. Merge or consolidate with, or sell, assign, lease, or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired), to any Person, or acquire any assets of or the business of any Person or permit any Subsidiary to do so; except (1) that any Subsidiary may merge into and transfer assets to the Borrower, (2) in connection with Permitted Acquisitions and (3) the acquisition from any Person of any assets required for the ongoing operation of the business of the Borrower or any Subsidiary, as the case may be. SECTION 8.04. Dividends. In the case of the Borrower, declare or pay any dividends; or purchase, redeem, retire, or otherwise acquire for value any of its capital stock or securities convertible into capital stock now or hereafter outstanding; or make any distribution of assets to its stockholders as such whether in cash, assets, or in obligations; or allocate or otherwise set apart any sum for the payment of any dividend or distribution on, or for the purchase, redemption, or retirement of any shares of its capital stock; or make any other distribution by reduction of capital or otherwise in respect of any shares of its capital stock; or permit any of its Subsidiaries to purchase or otherwise acquire for value any stock of the Borrower or any Subsidiary of the Borrower; except (1) the Borrower may declare and deliver dividends and make distributions payable solely in common stock of the Borrower, and (2) that the Borrower may purchase, redeem, retire or otherwise acquire for value any of its capital stock or securities convertible into common stock provided that (a) the total compensation paid and/or liabilities assumed in connection with all of the foregoing actions does not exceed Ten Million Dollars ($10,000,000) in the aggregate for all such actions, and (b) at the time of and after giving effect to such actions there are and shall be no Defaults or Events of Default. SECTION 8.05. Sale of Assets. Sell, lease, assign, transfer, pledge, or otherwise dispose of, or permit any Subsidiary to sell, lease, assign, transfer, pledge, or otherwise dispose of, any of its now owned or hereafter acquired assets (including, without limitation, shares of stock and Debt of their respective Subsidiaries, receivables and leasehold interests); except: (1) for inventory disposed of in the ordinary course of business, (2) for the sale or other disposition of assets no longer used or useful in the conduct of its business, and (3) that any Subsidiary may sell, lease, assign, or otherwise transfer its assets to the Borrower. SECTION 8.06. Investments. Make any loan or advance to any Person (including but not limited to any loan to any officer, director, employee, or Affiliate of the Borrower), or purchase or otherwise acquire any capital stock, assets, obligations, or other securities of, make any capital contribution to, or otherwise invest in or acquire any interest in any Person, or permit any Subsidiary to do so except: (1) provided that the weighted average life of all of the following is three (3) years or less at all times: (a) direct obligations of the United States or any agency thereof; (b) commercial paper of a domestic issuer rated at least "A-2" by Standard & Poor's Corporation or "P- 2" by Moody's Investors Service, Inc.; (c) certificates of deposit issued by either (i) the Bank, or (ii) any other commercial bank rated at least "BBB" by Standard & Poor's Corporation or "Baa" by Moody's Investors Service, Inc.; (d) Debt of a corporate domestic issuer with a long term debt rating of "BBB" or better by Standard & Poor's Corporation or "Baa" by Moody's Investors Service, Inc., (e) Debt of a domestic Governmental Authority with a long term debt rating of "BBB" or better by Standard & Poor's Corporation or "Baa" or better by Moody's Investors Service Inc., and (f) preferred stock of a domestic corporation with a long term debt rating "BBB" or better by Standard & Poor's Corporation or "Baa" or better by Moody's Investors Services, Inc.; (2) for stock, obligations, or securities received in settlement of debts (created in the ordinary course of business); (3) any of the foregoing incurred in connection with a Permitted Acquisition; (4) loans by the Borrower to the Guarantors; (5) loans by the Borrower to employees of the Borrower or its Subsidiaries provided that (a) the aggregate amount of all such loans outstanding to a particular employee at any time does not exceed One Hundred Thousand Dollars ($100,000), and (b) the aggregate amount of all such loans to all employees outstanding at any time does not exceed Five Hundred Thousand Dollars ($500,000); (6) the exercise of the warrant to purchase up to an aggregate of nine and one-half of one percent (9 1/2%) of the outstanding common stock of HHL, on a fully diluted basis, provided that the total compensation paid to exercise all such warrants shall not exceed Five Hundred Fifty-Six Thousand Dollars ($556,000) and (7) all investments required to be made by the Borrower under the terms of the Subscription Agreement. SECTION 8.07. Guaranties, Etc. Assume, guaranty, endorse, or otherwise be or become directly or contingently responsible or liable (including, but not limited to, an agreement to purchase any obligation, stock, assets, goods or services, or to supply or advance any funds, assets, goods, or services, or to maintain or cause such Person to maintain a minimum working capital or net worth, or otherwise to assure the creditors of any Person against loss) for obligations of any Person, or permit any Subsidiary to do so except (1) guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (2) the Guaranty; and (3) the guaranty of the obligations of QMA to pay rent under the Lease between QMA and Kilgore Business Park dated March 20, 1990, under the terms of such Lease as in effect on the Closing Date. SECTION 8.08. Transactions With Affiliate. Enter into any transaction, including, without limitation, the purchase, sale, or exchange of property or the rendering of any service, with any Affiliate, including, without limitation, the purchase, sale or exchange of property or the rendering of any service, except in the ordinary course of and pursuant to the reasonable requirements of its business and upon fair and reasonable terms no less favorable to it than it could obtain in a comparable arm's- length transaction with a Person not an Affiliate. SECTION 8.09. Restrictions on Dividends. The Borrower shall not permit any of its Subsidiaries to enter into any agreement, other than this Agreement, prohibiting or restricting the declaration or payment of cash dividends or other payments by such Subsidiary in respect of securities of such Subsidiary or loans, advances to, or other investments by such Subsidiary in, the Borrower or any Guarantor. SECTION 8.10. Stock of Subsidiary, Etc. Sell or otherwise dispose of any shares of capital stock of any Subsidiary, except in connection with a transaction permitted under Section 6.03, or permit any Subsidiary to issue any additional shares of its capital stock when after giving effect to such issuance the Person owning all of the stock of such Subsidiary on the date of this Agreement would own eighty percent (80%) or less of the stock of such Subsidiary. SECTION 8.11. Subscription Agreement. Change any of the terms or provisions of the Subscription Agreement. ARTICLE IX FINANCIAL COVENANTS So long as the Note remains unpaid or any Standby Letters of Credit Obligation shall remain outstanding or the Bank shall have any Commitment under this Agreement or any other amount is owing by Borrower to Bank under any Loan Document: SECTION 9.01. Minimum Consolidated Current Ratio. The Borrower and its Consolidated Subsidiaries will have as of the last day of each fiscal quarter of each fiscal year of the Borrower a ratio of (1) Consolidated Current Assets less Consolidated Deferred Assets to (2) Consolidated Current Liabilities less Consolidated Deferred Liabilities of not less 2.0 to 1. SECTION 9.02. Minimum Consolidated Tangible Net Worth. The Borrower and its Consolidated Subsidiaries will, as of the last day of each fiscal quarter of each fiscal year of the Borrower, commencing with the fiscal quarter ended January 31, 1996, have a Consolidated Tangible Net Worth of not less than the amount specified for such date: All Fiscal Quarters Ending Minimum Consolidated On the Last Day Of Each Month Tangible Net Worth April 1996, July 1996 $55,000,000 October 1996, January 1997, April 1997, July 1997 $60,000,000 October 1997, January 1998, April 1998, July 1998 $65,000,000 October 1998, January 1999, April 1999 $70,000,000 SECTION 9.03. Consolidated Leverage Ratio. The Borrower and its Consolidated Subsidiaries will have as of the last day of each fiscal quarter of each fiscal year of the Borrower, commencing with the fiscal quarter ended January 31, 1996, a ratio of (1) Consolidated Total Liabilities less Consolidated Deferred Liabilities to (2) Consolidated Tangible Net Worth of not more than .75 to 1. SECTION 9.04. Minimum Consolidated Cash Flow Ratio. The Borrower and its Consolidated Subsidiaries will, as of the last day of each fiscal year, commencing with fiscal year ended October 31, 1996, have a ratio of the following for the prior twelve month period (1) Consolidated Earnings Before Interest, Taxes and Depreciation, minus Consolidated Capital Expenditures to (2) Consolidated Debt Service plus Dividends of not less than 4.0 to 1. SECTION 9.05. Consolidated Interest Coverage. The Borrower and its Consolidated Subsidiaries will, as of the last day of each fiscal quarter in each fiscal year, commencing with the fiscal quarter ended January 31, 1996, have a ratio of the following for such fiscal quarters (1) Consolidated Earnings Before Interest, Taxes and Depreciation, to (2) Consolidated Interest Expense of not less than 5.0 to 1. ARTICLE X EVENTS OF DEFAULT SECTION 10.01. Events of Default. If any of the following events ("Events of Default") shall occur: (1) The Borrower shall fail to pay the principal of the Note when due and payable, or shall fail to pay interest on the Note when due and payable, or shall fail to reimburse the Bank on a Standby Letter of Credit when due and payable or shall fail to pay any other obligations owing to the Bank under this Agreement or any other Loan Document when due and payable; (2) Any representation or warranty made or deemed made by the Borrower or any Guarantor in any Loan Document to which it is a party or which is contained in any certificate, document, opinion, or financial or other statement furnished at any time under or in connection with any Loan Document shall prove to have been incorrect in any material respect on or as of the date made or deemed made; (3) The Borrower or any Guarantor shall fail to perform or observe any term, covenant, or agreement contained in Section 7.05 or Section 7.08 or Article VIII or Article IX on its part to be performed or observed; or Borrower or any Guarantor shall fail to perform or observe any term, covenant or agreement contained in Article VII (other than Section 7.05 and 7.08) or otherwise contained in this Agreement or any Loan Document (other than the Note) to which it is a party on its part to be performed or observed and such failure shall remain unremedied for thirty (30) consecutive calendar days after such occurrence; (4) The Borrower or any of its Subsidiaries or any Guarantor shall: (a) fail to pay any Debt (other than the Note) of the Borrower or such Subsidiary or the Guarantor, as the case may be, or any interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise); or (b) any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; (5) The Borrower or any of its Subsidiaries or the Guarantor: (a) shall generally not, or shall be unable to, or shall admit in writing its inability to pay its debts as such debts become due; or (b) shall make an assignment for the benefit of creditors, petition or apply to any tribunal for the appointment of a custodian, receiver, or trustee for its or a substantial part of its assets; or (c) shall commence any proceeding under any bankruptcy, reorganization, arrangements, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or (d) shall have any such petition or application filed or any such proceeding commenced against it, in which an order for relief is entered or adjudication or appointment is made and which remains undismissed for a period of sixty (60) days or more; or (e) by any act or omission shall indicate its consent to, approval of, or acquiescence in any such petition, application, or proceeding, or order for relief, or the appointment of a custodian, receiver, or trustee for all or any substantial part of its properties; or (f) shall suffer any such custodianship, receivership, or trusteeship to continue undischarged for a period of sixty (60) days or more; (6) One or more judgments, decrees, or orders for the payment of money in excess of One Hundred Thousand Dollars ($100,000) in the aggregate shall be rendered against any Borrower or any of its Subsidiaries or the Guarantor and such judgments, decrees, or orders shall continue unsatisfied and in effect for a period of thirty (30) consecutive days without being vacated, discharged, satisfied, or stayed or bonded pending appeal; (7) The Guaranty shall any time after its execution and delivery and for any reason cease to be in full force and effect or shall be declared null and void, or the validity or enforceability thereof shall be contested by any Guarantor, or any Guarantor shall deny it has any further liability or obligation under the Guaranty, or any Guarantor shall fail to perform any of its obligations under the Guaranty; (8) Any of the following events occur or exist with respect to the Borrower or any ERISA Affiliate: (a) any Prohibited Transaction involving any Plan; (b) any Reportable Event with Respect to any Plan; (c) the filing under Section 4041 of ERISA of a notice of intent to terminate any Plan or the termination of any Plan; (d) any event or circumstance that might constitute grounds entitling the PBGC to institute proceedings under Section 4042 of ERISA for the termination of, or for the appointment of a trustee to administer, any Plan, or the institution by the PBGC of any such proceedings; (e) complete or partial withdrawal under Section 4201 or 4202 of ERISA from a Multiemployer Plan or the reorganization, insolvency, or termination of any Multiemployer Plan; and in each case above, such event or condition, together with all other events or conditions, if any, could in the opinion of the Bank subject the Borrower to any tax, penalty, or other liability to a Plan, a Multiemployer Plan, the PBGC, or otherwise (or any combination thereof) which in the aggregate exceed or may exceed One Hundred Thousand Dollars ($100,000); (9) if any Acquisition is made under the terms of the Subscription Agreement and the Person acquired is not engaged in a business similar to or related to any Existing Line of Business; then, and in any such event (other than Section 10.01(5)), the Bank may, by notice to the Borrower, (1) declare the Commitments to be terminated, whereupon the same shall forthwith terminate, (2) declare the outstanding Note, all interest thereon, and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Note, all such interest, and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest, or further notice of any kind, all of which are hereby expressly waived by the Borrower; (3) require Borrower to provide Cash Collateral in the aggregate amount of all outstanding Standby Letters of Credit; and (4) exercise any of the remedies provided in this Agreement and any of the other Loan Documents; provided, however, that upon the occurrence of an Event of Default referred to in Section 10.01(5), the Commitments shall automatically terminate and the outstanding Note, all interest thereon, and all Standby Letter of Credit Obligations and any other amounts payable under this Agreement or any of the other Loan Documents, shall be forthwith due and payable without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower. ARTICLE XI MISCELLANEOUS SECTION 11.01. Amendments, Etc. No amendment, modification, termination, or waiver of any provision of any Loan Document to which the Borrower or a Guarantor is a party, nor consent to any departure by the Borrower or a Guarantor from any Loan Document shall in any event be effective unless the same shall be in writing and signed by the Bank, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 11.02. Notices, Etc. All notices and other communications provided for under this Agreement and under the other Loan Documents to which the Borrower is a party shall be in writing (including telegraphic communication) and mailed or delivered by messenger or sent by facsimile, if to the Borrower or the Guarantors, at the Borrower's address at 401 Park Avenue South, New York, New York 10016, Attention: Phillip Siegel, with a copy to Coleman & Rhine, LLP, 1120 Avenue of the Americas, New York, New York 10036, Attention: Kenneth S. Goodwin, if to the Bank, at its address at the Manhattan Middle Market Division, 1411 Broadway, Fifth Floor, New York, New York, 10018, Attention: Maria Florez, with a copy to Dewey Ballantine, 1301 Avenue of the Americas, New York, New York 10019, Attention: Rodger Tighe or, as to each party, at such other address as shall be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section. All such notices and communications shall, when mailed or telegraphed or sent by facsimile, be effective when deposited in the mails, delivered by facsimile or sent to the telegraph company, respectively addressed as aforesaid, except that notices to the Bank pursuant to the provisions of Article II shall not be effective until received by the Bank. SECTION 11.03. No Waiver; Remedies. No failure on the part of the Bank to exercise and no delay in exercising, any right, power, or remedy under any Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right under any Loan Documents preclude any other or further exercise thereof or the exercise of any other right. The remedies provided in the Loan Documents are cumulative and not exclusive of any remedies provided by law. SECTION 11.04. Assignment; Participation. This Agreement shall be binding upon, and shall inure to the benefit of, the Borrower, each Guarantor, the Bank and their respective successors and assigns, except that neither the Borrower nor any Guarantor may assign or transfer its rights or obligations hereunder. The Bank may assign its rights and obligations hereunder, without the consent of the Borrower, and any assignee hereunder shall have, to the extent of such assignment (unless otherwise provided therein), the same rights, benefits and obligations as it would have if it were the Bank hereunder. The Bank may sell participations in, all or any part of any Loan to another bank or other Person and the participant shall have no rights under the Loan Documents and all amounts payable by the Borrower under the Loan Documents shall be determined as if the Bank had not sold such participation. The agreement executed by the Bank in favor of the participant shall not give the participant the right to require the Bank to take or omit to take any action hereunder except action directly relating to (1) the increase in the Revolving Credit Facility, (2) extension of the Revolving Credit Facility Termination Date, or (3) the reduction of the Revolving Credit Facility Fee or the rate of interest payable on the Loans or the Standby Letter of Credit Fee to a fee or rate, as the case may be, below that which the participant is entitled to receive under its agreement with the Bank. The Bank may furnish any information concerning the Borrower and the Guarantors in the possession of the Bank from time to time to assignees and participants (including prospective assignees and participants). SECTION 11.05. Costs, Expenses and Taxes. The Borrower and each Guarantor agree to pay on demand all costs and expenses in connection with the preparation, execution, delivery, filing, recording, and administration of any of the Loan Documents, including, without limitation, the fees and out-of-pocket expenses of counsel for the Bank, and any local counsel who may be retained by said counsel, with respect thereto and with respect to advising the Bank as to its rights and responsibilities under any of the Loan Documents, and all costs and expenses, if any, in connection with the enforcement of any of the Loan Documents. In addition, the Borrower and each Guarantor shall be obligated to pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing, and recording of any of the Loan Documents and the other documents to be delivered under any such Loan Documents, and agrees to save the Bank harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. SECTION 11.06. Indemnification. The Borrower agrees to indemnify the Bank and its respective directors, officers, employees, agents and controlling persons (each on "Indemnified Party") from, and hold each of them harmless against, any and all losses, liabilities, claims, damages or liabilities incurred by any of them arising out of or by reason of any investigation, litigation or other proceedings (including any threatened investigation, litigation or other proceedings) relating to or arising in connection with this Agreement, any other Loan Document or the transactions contemplated hereby or thereby (but excluding any such losses, liabilities, claims, damages or liabilities incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified). The Borrower also agrees to reimburse any Indemnified Person for all expenses incurred in connection with any such investigation, litigation or other proceedings (whether actual or threatened), including, without limitation, the fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceedings. The obligations of the Borrower under this Section shall survive the repayment of the Loans and all amounts due under or in connection with any of the Loan Documents and the termination of the Revolving Credit Facility. SECTION 11.07. Right of Setoff. Upon the occurrence and during the continuance of any Event of Default, the Bank is hereby authorized at any time and from time to time, without notice to the Borrower or any Guarantor (any such notice being expressly waived by the Borrower and each Guarantor), to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Bank to or for the credit or the account of the Borrower or any Guarantor against any and all of the obligations of the Borrower or any Guarantor now or hereafter existing under this Agreement or the Note or any Standby Letter of Credit or any other Loan Document, irrespective of whether or not the Bank shall have made any demand under this Agreement or the Note or any Standby Letter of Credit or such other Loan Document and although such obligations may be unmatured. The Bank agrees promptly to notify the Borrower or the applicable Guarantor, as the case may be, after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights of the Bank under this Section are in addition to other rights and remedies (including, without limitation, other rights of setoff) which the Bank may have. SECTION 11.08. Governing Law. This Agreement and the Note shall be governed by, and construed in accordance with, the laws of the State of New York. SECTION 11.09. Severability of Provisions. Any provision of any Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 11.10. Headings. Article and Section headings in the Loan Documents are included in such Loan Documents for the convenience of reference only and shall not constitute a part of the applicable Loan Documents for any other purpose. SECTION 11.11. Jurisdiction; Immunities; Waiver of Jury Trial. The Borrower and each Guarantor hereby irrevocably submit to the jurisdiction of any New York State or United States Federal court sitting in the Southern District of New York over any action or proceeding arising out of or relating to any of the Loan Documents, and the Borrower and each Guarantor hereby irrevocably agree that all claims in respect of such action or proceeding may be heard and determined in such New York State or Federal court. The Borrower and each Guarantor irrevocably consent to the service of any and all process in any such action or proceeding by the mailing of copies of such process to the Borrower or the applicable Guarantor, as the case may be, at its address specified in Section 11.02 by registered mail, return receipt requested. The Borrower and each Guarantor agree that a final judgment in any such action or proceeding shall be conclusive and may be enforced in any jurisdictions by suit on the judgment or in any other manner provided by law. The Borrower and each Guarantor further waive any objection to venue in such State on the basis of forum non convenience. The Borrower and each Guarantor further agree that any action or proceeding brought against the Bank shall be brought only in New York State or United States Federal court sitting in the Southern District of New York. Nothing in this Section 11.11 shall affect the right of the Bank to serve legal process in any other manner permitted by law or affect the right of the Bank to bring any action or proceeding against the Borrower or any Guarantor or their respective property in the courts of any other jurisdictions. To the extent that the Borrower or any Guarantor has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, the Borrower and each Guarantor hereby irrevocably waive such immunity in respect of their respective obligations under the Loan Documents. THE BORROWER AND EACH GUARANTOR HEREBY WAIVES ITS RESPECTIVE RIGHT TO A JURY TRIAL. [INTENTIONALLY LEFT BLANK.] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. HEALTH MANAGEMENT SYSTEMS, INC. By Name: Phillip Siegel Title: Vice President & Chief Financial Officer ACCELERATED CLAIMS PROCESSING, INC. By Name: Paul J. Kerz Title: Secretary QUALITY MEDI-CAL ADJUDICATION, INCORPORATED By Name: Paul J. Kerz Title: Secretary HEALTH CARE MICROSYSTEMS, INC. By Name: Title: CDR ASSOCIATES, INC. By Name: Paul J. Kerz Title: Secretary THE CHASE MANHATTAN BANK By Name: Maria B. Florez Title: Vice President LENDING OFFICE FOR PRIME RATE AND LIBOR RATE LOANS: THE CHASE MANHATTAN BANK 1411 Broadway Fifth Floor New York, New York 10018 Telephone: (212) 391-7652 Facsimile: (212) 391-7117 EX-10.1(I) 3 FIRST AMENDMENT TO CREDIT AGREEMENT [EXECUTION COPY] FIRST AMENDMENT TO CREDIT AGREEMENT AND GUARANTY AND WAIVER FIRST AMENDMENT TO CREDIT AGREEMENT AND GUARANTY AND WAIVER dated as of September 9, 1996 (the "First Amendment") among HEALTH MANAGEMENT SYSTEMS, INC. (the "Borrower"), ACCELERATED CLAIMS PROCESSING, INC. ("ACP"), QUALITY MEDI-CAL ADJUDICATION, INCORPORATED ("QMA"), HEALTH CARE MICROSYSTEMS, INC. ("HCM"), CDR ASSOCIATES INC. ("CDR"), and THE CHASE MANHATTAN BANK (the "Bank"). PRELIMINARY STATEMENT. The Borrower, ACP, QMA, HCM, CDR and the Bank have entered into a Credit Agreement and Guaranty dated as of July 1, 1996 (the "Credit Agreement"). Any term used herein and not otherwise defined herein shall have the meaning assigned to such term in the Credit Agreement. The Borrower, ACP, QMA, HCM, CDR and the Bank have agreed to amend the Credit Agreement as hereinafter set forth. SECTION 1. Amendments to Credit Agreement. The Credit Agreement is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 3 hereof, hereby amended as follows: (a) Section 9.05, Consolidated Interest Coverage, is amended in its entirety to read as follows: Section 9.05. Consolidation Interest Coverage. The Borrower and its Consolidated Subsidiaries will, as of the last day of each fiscal quarter in each fiscal year, commencing with the fiscal quarter ended October 30, 1996, have a ratio of the following for each twelve (12) month period (taken together as a whole) ending on the end of each such fiscal quarter (1) Consolidated Earnings Before Interest, Taxes and Depreciation, to (2) Consolidated Interest Expense of not less than 5.0 to 1. SECTION 2. Waiver. The Borrower has advised the Bank that the Borrower was not in compliance with Section 9.05 "Consolidation Interest Coverage" for its third fiscal quarter ended July 31, 1996. Such noncompliance constitutes an Event of Default under the Credit Agreement which the Borrower has asked the Bank to waive. The Bank waives the Borrower's compliance with Section 9.05 "Consolidated Interest Coverage" for its third fiscal quarter ended July 31, 1996. The Bank, however, does not waive any noncompliance by the Borrower with respect to Section 9.05 "Consolidated Interest Coverage" for any other period or any present or future noncompliance by the Borrower with respect to any other provision of the Credit Agreement. SECTION 3. Condition of Effectiveness. This First Amendment shall become effective as of the date on which each of the following conditions have been fulfilled: (1) First Amendment. The Borrower, ACP, QMA, HCM, CDR and the Bank shall each have executed and delivered this First Amendment; (2) Consent of Guarantors. Each of the Guarantors must consent to this First Amendment and each Guarantor agrees that its execution of this First Amendment constitutes its consent to such First Amendment. (3) Officer's Certificate. The following statements shall be true and the Bank shall have received a certificate signed by a duly authorized officer of the Borrower dated the date hereof stating that, after giving effect to this First Amendment: (a) The representations and warranties contained in each of the Loan Documents are correct on and as of the date hereof as though made on and as of such date; and (b) No Default or Event of Default has occurred and is continuing. (4) Legal Bills. Dewey Ballantine shall have been paid in full for all legal fees, costs and expenses in connection with the preparation of this First Amendment and any and all other documents delivered pursuant hereto or in connection herewith. (5) Other Documents. The Bank shall have received such other approvals, opinions or documents as the Bank may reasonably request. SECTION 3. Reference to and Effect on the Loan Documents. (a) Upon the effectiveness of Section 1 hereof, on and after the date hereof each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import, and each reference in the 2 other Loan Documents to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended hereby. (b) Except as specifically amended above, the Credit Agreement and all other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. (c) The execution, delivery and effectiveness of this First Amendment shall not operate as a waiver of any right, power or remedy of the Bank under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents, and, except as specifically provided herein, the Credit Agreement and each other Loan Document shall remain in full force and effect and are hereby ratified and confirmed. SECTION 4. Costs, Expenses and Taxes. The Borrower agrees to reimburse the Bank on demand for all out- of-pocket costs, expenses and charges (including, without limitation, all fees and charges of legal counsel for the Bank) incurred by the Bank in connection with the preparation, reproduction, execution and delivery of this First Amendment and any other instruments and documents to be delivered hereunder. In addition, the Borrower shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution and delivery, filing or recording of this First Amendment and the other instruments and documents to be delivered hereunder, and agrees to save the Bank harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes or fees. SECTION 5. Governing Law. This First Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 6. Headings. Section headings in this First Amendment are included herein for convenience of reference only and shall not constitute a part of this First Amendment for any other purpose. SECTION 7. Counterparts. This First Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any party hereto may execute this First Amendment by signing any such counterpart. 3 IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed as of the day and year first above written. HEALTH MANAGEMENT SYSTEMS, INC. By Name: Title: ACCELERATED CLAIMS PROCESSING, INC. By Name: Title: QUALITY MEDI-CAL ADJUDICATION, INCORPORATED By Name: Title: HEALTH CARE MICROSYSTEMS, INC. By Name: Title: CDR ASSOCIATES, INC. By Name: Title: THE CHASE MANHATTAN BANK By Name: Title: 4 EX-10.2 4 LEASE EXECUTION - -------------------------------------------------------------------------------- 387 P.A.S. ENTERPRISES, Landlord TO HEALTH MANAGEMENT SYSTEMS, INC., Tenant ---------------- LEASE ---------------- 387 Park Avenue South New York, New York The Land affected by the within Instrument lies in Section 3, Block 883, on the Land Map of the County of New York (Tax Lot 1). - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- DEFINITIONS............................................................................................ vi ARTICLE 1 Demised Premises; Term; Rents........................................................ 1 ARTICLE 2 Use.................................................................................. 4 ARTICLE 3 Tenant's Occupancy of the Demised Premises........................................... 4 ARTICLE 4 Delivery of Possession; Right to Terminate for Failure to Deliver Fourth Floor Premises............................................. 6 ARTICLE 5 Adjustments of Rent.................................................................. 6 ARTICLE 6 Subordination; Notice to Lessors and Mortgagees...................................... 8 ARTICLE 7 Quiet Enjoyment...................................................................... 10 ARTICLE 8 Assignment and Subletting............................................................ 10 ARTICLE 9 Compliance With Laws and Requirements of Public Authorities................................................................... 16 ARTICLE 10 Insurance............................................................................ 18 ARTICLE 11 Rules and Regulations................................................................ 21 ARTICLE 12 Tenant's Changes..................................................................... 21 ARTICLE 13 Tenant's Property.................................................................... 25 ARTICLE 14 Repairs and Maintenance.............................................................. 26 ARTICLE 15 Electricity.......................................................................... 27 ARTICLE 16 Heat, Ventilation and Air-Conditioning............................................... 28 ARTICLE 17 Other Services....................................................................... 29 ARTICLE 18 Access; Changes in Building Facilities; Name......................................... 30 ARTICLE 19 Notice of Accidents.................................................................. 31 ARTICLE 20 Non-Liability and Indemnification.................................................... 31 ARTICLE 21 Destruction or Damage................................................................ 32 ARTICLE 22 Eminent Domain....................................................................... 34 ARTICLE 23 Surrender............................................................................ 36 ARTICLE 24 Conditions of Limitation............................................................. 37 ARTICLE 25 Remedies and Damages................................................................. 38 ARTICLE 26 Waivers.............................................................................. 41 ARTICLE 27 No Other Waivers or Modifications.................................................... 42 ARTICLE 28 Curing Tenant's Defaults; Additional Rent; Reimbursement of Costs.................... 43 ARTICLE 29 Broker............................................................................... 44 ARTICLE 30 Notices.............................................................................. 44 ARTICLE 31 Estoppel Certificate; Memorandum..................................................... 45 ARTICLE 32 Arbitration.......................................................................... 46 ARTICLE 33 No Other Representations; Construction; Governing Law; Consents...................... 46 ARTICLE 34 Parties Bound........................................................................ 47 ARTICLE 35 Certain Definitions and Construction................................................. 48 ARTICLE 36 Adjacent Excavation; Shoring......................................................... 51 ARTICLE 37 Tenant's Option to Renew............................................................. 51 ARTICLE 38 onnection to the 401 Premises........................................................ 53 Exhibit A DESCRIPTION.......................................................................... 58 Exhibit B WORKLETTER........................................................................... 59 Exhibit C RULES AND REGULATIONS................................................................ 62 LEASE Lease, dated as of the ___ day of March, 1996 (this "Lease"), by and between 387 P.A.S. ENTERPRISES, a New York partnership having an office at 387 Park Avenue South, New York, New York 10016 ("Landlord") and HEALTH MANAGEMENT SYSTEMS, INC., a New York corporation having corporate headquarters at 401 Park Avenue South, New York, New York 10022 ("Tenant"). WITNESSETH: ARTICLE 1 Demised Premises; Term; Rents 1.01 Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, the premises hereinafter described, in the building located at 387 Park Avenue South, in the Borough of Manhattan, City, County and State of New York (the "Building"), on the parcel of land more particularly described in Exhibit A (the "Land"), for the term hereinafter stated, for the rents hereinafter reserved and upon, and subject to, the conditions (including limitations, restrictions and reservations) and covenants hereinafter provided. Each party hereby expressly covenants and agrees to observe and perform all of the conditions and covenants herein contained on its part to be observed and performed. 1.02 The premises hereby leased to Tenant are the entire third (3rd) floor (the "Third Floor Premises") and the entire fourth (4th) floor (the "Fourth Floor Premises") of the Building consisting of approximately 33,320 square feet in the aggregate. Each of the Third Floor Premises and the Fourth Floor Premises, together with all fixtures and equipment that, at the commencement or during the term of this Lease, are thereto attached (except items removable by Tenant as provided in Article 13), constitute and are hereinafter collectively called the "Demised Premises". 1.03 The term of this Lease (the "Term"), shall commence on the date on which Landlord delivers possession to Tenant of the Third Floor Premises (the "Commencement Date"), and shall expire at noon on the last day of the month in which occurs the day immediately preceding the tenth (10th) anniversary of the date (the "Fourth Floor Delivery Date") on which Landlord delivers possession to Tenant of the Fourth Floor Premises (the "Fixed Expiration Date"; the Fixed Expiration Date or such earlier or later date upon which said Term may expire or be cancelled or terminated pursuant to any of the conditions or covenants of this Lease or pursuant to law is hereinafter referred to as the "Expiration Date"). -1- 1.04 The rents reserved under this Lease for the Term shall be and consist of: (a) "Base Rent," payable in advance to Landlord on the first day of each and every calendar month during the Term, as follows: (i) For the period commencing on the Commencement Date through and including the last day of the month in which the day immediately preceding the first (1st) anniversary of the Rent Commencement Date occurs, in the amount of Six Hundred Seventy-Four Thousand Seven Hundred Thirty Dollars ($674,730) per annum, which shall be payable in equal monthly installments of $56,227.50; (ii) For the period commencing on the first (1st) anniversary of the Rent Commencement Date through and including the last day of the month in which the day immediately preceding the second (2nd) anniversary of the Rent Commencement Date occurs, in the amount of Seven Hundred One Thousand Seven Hundred Nineteen Dollars ($701,719) per annum, which shall be payable in equal monthly installments of $58,476.58; (iii) For the period commencing on the second (2nd) anniversary of the Rent Commencement Date through and including the last day of the month in which the day immediately preceding the third (3rd) anniversary of the Rent Commencement Date occurs, in the amount of Seven Hundred Twenty-Nine Thousand Seven Hundred Eighty-Eight Dollars ($729,788) per annum, which shall be payable in equal monthly installments of $60,815.67; (iv) For the period commencing on the third (3rd) anniversary of the Rent Commencement Date through and including the last day of the month in which the day immediately preceding the fourth (4th) anniversary of the Rent Commencement Date occurs, in the amount of Seven Hundred Fifty-Eight Thousand Nine Hundred Seventy-Nine Dollars ($758,979) per annum, which shall be payable in equal monthly installments of $63,248.25; (v) For the period commencing on the fourth (4th) anniversary of the Rent Commencement Date through and including the last day of the month in which the day immediately preceding the fifth (5th) anniversary of the Rent Commencement Date occurs, in the amount of Seven Hundred Eighty Nine Thousand Three Hundred Thirty-Nine Dollars ($789,339) per annum, which shall be payable in equal monthly installments of $65,778.25; (vi) For the period commencing on the fifth (5th) anniversary of the Rent Commencement Date through and including the last day of the month in which the day immediately preceding the sixth (6) anniversary of the Rent Commencement -2- Date occurs, in the amount of Eight Hundred Twenty Thousand Nine Hundred Twelve Dollars ($820,912) per annum, which shall be payable in equal monthly installments of $68,409.33; (vii) For the period commencing on the sixth (6th) anniversary of the Rent Commencement Date through and including the last day of the month in which the day immediately preceding the seventh (7th) anniversary of the Rent Commencement Date occurs, in the amount of Eight Hundred Fifty-Three Thousand Seven Hundred Forty-Nine Dollars ($853,749) per annum, which shall be payable in equal monthly installments of $71,145.75; (viii) For the period commencing on the seventh (7th) anniversary of the Rent Commencement Date through and including the last day of the month in which the day immediately preceding the eighth (8th) anniversary of the Rent Commencement Date occurs, in the amount of Eight Hundred Eighty-Seven Thousand Eight Hundred Ninety-Nine Dollars ($887,899) per annum, which shall be payable in equal monthly installments of $73,991.58; (ix) For the period commencing on the eighth (8th) anniversary of the Rent Commencement Date through and including the last day of the month in which the day immediately preceding the ninth (9th) anniversary of the Rent Commencement Date occurs, in the amount of Nine Hundred Twenty-Three Thousand Four Hundred Fifteen Dollars ($923,415) per annum, which shall be payable in equal monthly installments of $76,951.25; (x) For the period commencing on the ninth (9th) anniversary of the Rent Commencement Date through and including the Fixed Expiration Date, in the amount of Nine Hundred Sixty Thousand Three Hundred Fifty-One Dollars ($960,351) per annum, so much of which shall be applicable pro rata to the foregoing period shall be payable in equal monthly installments of $80,029.25; and (b) "Additional Rent" consisting of all such other sums of money as shall become due from and payable by Tenant to Landlord hereunder, all to be paid to Landlord at its office, or at such other place, or to such agent and at such place, as Landlord may designate from time to time by notice to Tenant, in lawful money of the United States of America. All Base Rent, Additional Rent and other items of rent payable under this Lease by Tenant to Landlord are collectively hereinafter referred to as "Rental". 1.05 Notwithstanding the foregoing, provided no Event of Default has occurred and is continuing hereunder, Tenant shall not be required to pay Base Rent for the period commencing on the Commencement Date and ending on the 150th day following the Fourth Floor Delivery Date, both dates inclusive (the "Initial Period"; the first day following the expiration of -3- the Initial Period is hereinafter referred to as the "Rent Commencement Date"). All of the other terms, provisions and conditions of this Lease shall apply with full force and effect during the Initial Period. 1.06 Tenant shall pay Base Rent and Additional Rent herein reserved promptly as and when the same shall become due and payable, without demand therefor and without any abatement, deduction, or setoff whatsoever. 1.07 If the Rent Commencement Date falls on a day other than the first day of a calendar month, then, on the Rent Commencement Date, Tenant shall pay to Landlord a sum equal to $1,874.25 multiplied by the number of days in the period from the Rent Commencement Date to the last day of the calendar month in which the Rent Commencement Date occurs, both dates inclusive. 1.08 Notwithstanding the provisions of Section 1.05, during the Initial Period, Tenant shall pay all items of Rental otherwise due and payable hereunder except Base Rent. ARTICLE 2 Use 2.01 Tenant shall use and occupy the Demised Premises for executive offices, general offices and uses incidental thereto, including, without limitation, computer rooms for use by Tenant and its employees, and for no other purpose. Neither the Demised Premises nor any part thereof shall be used: (i) as a restaurant, luncheonette, or otherwise for the preparation and/or sale of food for on or off premises consumption; (ii) as a discount store; (iii) as a multiple tenancy store; (iv) by a foreign or domestic governmental agency; (v) as a betting parlor or gambling casino; or (vi) by a utility company. 2.02 If any governmental license or permit, other than a Certificate of Occupancy, shall be required for the proper and lawful conduct of Tenant's business in the Demised Premises or any part thereof, Tenant, at its expense, shall duly procure, and thereafter maintain, such license or permit and submit the same for inspection by Landlord. Tenant shall, at all times, comply with the terms and conditions of any such license or permit. 2.03 Tenant shall not, at any time, use or occupy, or suffer or permit anyone to use or occupy, the Demised Premises, or do or permit anything to be done in the Demised Premises, in violation of the Certificate of Occupancy for the Demised Premises or for the Building. -4- ARTICLE 3 Tenant's Occupancy of the Demised Premises 3.01 Subject to the provisions of Article 4, the Demised Premises shall be completed and prepared for Tenant's occupancy as provided in Exhibit B attached hereto and made a part hereof. The work to be performed in the Demised Premises by Landlord at Landlord's sole cost and expense in accordance with Exhibit B is hereinafter called "Landlord's Work". Any Change undertaken by Tenant to prepare the Demised Premises for Tenant's occupancy in accordance with Exhibit B is hereinafter called "Tenant's Work." Tenant's Work shall be performed in accordance with all provisions of Article 12 hereof as if such work comprised a Change (as such term is defined in Article 12). 3.02 Landlord and Landlord's agents and representatives have made no representations or promises with respect to the Building, the Land or the Demised Premises except as herein expressly set forth, and no rights, easements or licenses are acquired by Tenant by implication or otherwise except as expressly set forth herein. Tenant shall accept possession of the Demised Premises in the condition which shall exist on the Commencement Date "as is", and Landlord shall have no obligation to perform any work or make any installations in the Demised Premises except for the items of Landlord's Work set forth on Exhibit B. 3.03 (a) Landlord shall give Tenant written notice at least ten (10) days in advance of the date when Landlord expects to deliver to Tenant possession of each portion of the Demised Premises. (b) Tenant expressly acknowledges that, in accordance with good construction practice and scheduling, Landlord's Work will be performed by Landlord prior to, or simultaneously with, the performance by Tenant of Tenant's Work (or portions thereof). Landlord and Tenant agree to cooperate with each other (including, without limitation, coordination of scheduling between the contractors performing Landlord's Work and the contractors performing Tenant's Work) to permit Landlord's Work to be performed when required, in accordance with good construction practice and scheduling simultaneously with Tenant's Work. As used in this Lease, "substantially complete," "substantial completion" or other words of like import shall mean completion other than (i) minor or insubstantial details of construction or demolition and/or mechanical adjustment and/or decorative items, which remain to be performed and (ii) any long lead work which remains to be performed. (c) Landlord shall not be liable in any way to Tenant for any damages or losses arising by reason of the performance of Landlord's Work and the same shall not constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of Rental, or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Landlord or its agents by reason of inconvenience or annoyance to Tenant, or -5- injury to or interruption of Tenant's business or otherwise. Tenant shall cooperate fully with Landlord so as to not interfere with the completion of any Landlord's Work. ARTICLE 4 Delivery of Possession; Right to Terminate for Failure to Deliver Fourth Floor Premises 4.01 Landlord shall deliver possession to Tenant of the Third Floor Premises on the Commencement Date and the Fourth Floor Premises on the Fourth Floor Delivery Date. 4.02 If Landlord shall be unable to deliver possession to Tenant of the Fourth Floor Premises on or before the date which is nine (9) months following the date hereof ( the "Outside Date"), either Landlord or Tenant, by delivering notice (the "Termination Notice") to the other within thirty (30) days after the Outside Date, may terminate this Lease. Upon the giving of such notice, this Lease shall terminate on the date set forth in the Termination Notice, but not sooner than the tenth (10th) day nor later than the thirtieth (30th) day after such notice is given, and Tenant shall vacate the Third Floor Premises and surrender the same to Landlord in accordance with the provisions of Article 23 hereof. ARTICLE 5 Adjustments of Rent 5.01 Tax Escalation. For purposes of Sections 5.01 to 5.05: (a) "Taxes" shall mean the aggregate amount of real estate taxes, assessments and special assessments imposed upon the Building and the Land. If, at any time during the term of this Lease, the methods of taxation prevailing on the Commencement Date shall be altered so that, in lieu of, as an addition to, or as a substitute for the whole or any part of the taxes, assessments, levies, impositions, or charges now levied, assessed, or imposed on real estate and the improvements thereon, there shall be levied, assessed, or imposed (i) a tax, assessment, levy, imposition, or charge wholly or partially as a capital levy or otherwise on the rents received therefrom, (ii) a tax, assessment, levy, imposition, or charge measured by, or based in whole or in part upon, the Demised Premises and imposed upon Landlord, or (iii) a license fee measured by the rents payable by Tenant to Landlord, then all such taxes, assessments, levies, impositions, or charges, or the part thereof so measured or based, shall be deemed to be included within the term Taxes for the purposes hereof. With respect to any Tax Year, all expenses, including reasonable attorney's fees and disbursements, experts' and other witnesses' fees, incurred in -6- contesting the validity or amount of any Taxes or in obtaining a refund of Taxes shall be considered as part of the Taxes for such Tax Year. (b) "Tax Year" shall mean the fiscal year commencing July 1 and ending on the next succeeding June 30 for which Taxes are levied by the governmental authority. (c) "Base Taxes" shall mean the average of (i) the Taxes payable for the Tax Year commencing July 1, 1995 and ending June 30, 1996 and (ii) the Taxes payable for the Tax Year commencing July 1, 1996 and ending June 30, 1997. (d) "Tenant's Proportionate Share" shall mean, for purposes of this Lease and all calculations in connection herewith, 16.67%, which percentage is based on a measurement, for purposes of this Article 5 only, of 16,660 square feet for each floor comprising the Demised Premises. (e) "Tenant's Proportionate Share of Tax Increase" shall mean Tenant's Proportionate Share multiplied by the amount by which the Taxes for the subject Tax Year exceed the Base Taxes, as finally determined. (f) "Tenant's Monthly Share of Tax Increase" shall mean one-twelfth (1/12th) of Tenant's Proportionate Share of Tax Increase. 5.02 If the Taxes payable for any Tax Year (any part or all of which falls within the Term and after the Rent Commencement Date) shall represent an increase above the Base Taxes, then, within sixty (60) days after Landlord shall receive its tax bill for such Tax Year, Landlord shall furnish Tenant with a written statement setting forth Tenant's Proportionate Share of Tax Increase and Tenant's Monthly Share of Tax Increase for such Tax Year, which statement shall be sent to Tenant together with a copy of the tax bill received by Landlord. Each statement furnished under this Section 5.02 is hereinafter called a "Tax Statement." On the later to occur of (i) the first day of the month following the furnishing to Tenant of a Tax Statement and (ii) ten (10) days following the furnishing to Tenant of a Tax Statement, Tenant shall pay to Landlord Tenant's Monthly Share of Tax Increase and shall continue to make such payments until the first day of the month following the month in which Landlord shall deliver to Tenant a new Tax Statement. If Landlord furnishes a Tax Statement for a new Tax Year subsequent to the commencement thereof, promptly after the new Tax Statement is furnished to Tenant, Landlord shall give notice to Tenant stating whether the amount previously paid by Tenant to Landlord for the current Tax Year was greater or less than the installments of the Tax Payment for the current tax year in accordance with the Tax Statement, and (a) if there shall be a deficiency, Tenant shall pay the amount thereof within ten (10) days after demand therefor, or (b) if there shall have been an overpayment, Landlord shall credit the amount thereof against the next monthly installments of the Fixed Rent payable under this Lease. Tax Payments shall be collectible by Landlord in the same manner as Fixed Rent. Landlord's failure to render a Tax Statement shall not prejudice -7- Landlord's right to render a Tax Statement during or with respect to any subsequent Tax Year, and shall not eliminate or reduce Tenant's obligation to make Tax Payments for such Tax Year. 5.03 Every Tax Statement furnished by Landlord shall be conclusive and binding upon Tenant, unless Tenant shall notify Landlord within thirty (30) days after the receipt of such statement that it disputes the correctness of the computations made thereon, specifying the particular respects in which such computations are claimed to be incorrect. Pending the resolution of such dispute, Tenant shall, within thirty (30) days after receipt of such disputed Tax Statement, pay any Additional Rent due in accordance therewith, but such payment shall be without prejudice to Tenant's position. If the dispute shall be resolved in Tenant's favor, Landlord shall, on demand, pay Tenant the amount of Tenant's overpayment of rents, if any, resulting from compliance with the disputed Tax Statement. 5.04 Notwithstanding the fact that the aforesaid increase in rent is measured by an increase in Taxes over the Base Taxes, such increase is Additional Rent and shall be paid by Tenant as herein provided regardless of the fact that Tenant may be exempt, in whole or in part, from the payment of any taxes by reason of Tenant's diplomatic or other tax exempt status or for any other reason whatsoever. 5.05 (a) Only Landlord shall be eligible to institute tax reduction or other proceedings to reduce the assessed valuation of the Land and the Building. Should Landlord be successful in any such reduction proceedings and obtain a rebate for periods as to which Tenant has paid its share of increases, Landlord shall, after deducting its expenses (including reasonable attorneys' fees and disbursements in connection therewith), return Tenant's Proportionate Share of such rebate to Tenant or, at Landlord's option, credit Tenant's Proportionate Share of such rebate against Tenant's payment of Base Rent next becoming due. (b) In the event that, after a Tax Statement has been sent to Tenant, the assessed valuation of the Land and the Building which had been utilized in computing the Base Taxes is reduced (as a result of settlement, final determination of legal proceedings or otherwise) then, and in such event: (i) the Base Taxes shall be retroactively adjusted to reflect such reduction, and (ii) all retroactive payments of Tenant's Proportionate Share of Tax Increase resulting from such retroactive adjustment shall be due and payable when billed by Landlord. Landlord promptly shall send to Tenant a statement setting forth the basis for such retroactive adjustment and payments of Tenant's Proportionate Share of Tax Increase. 5.06 Tenant's liability for the amounts due under this Article 5 shall survive the expiration of the term hereof, and any amount due for a partial period between the expiration of a Tax Year, calendar year, or lease year and the Expiration Date shall be prorated. ARTICLE 6 -8- Subordination; Notice to Lessors and Mortgagees 6.01 This Lease, and all rights of Tenant hereunder, are and shall be subject and subordinate in all respects to: (a) all ground leases, overriding leases and underlying leases of the Land and/or the Building now or hereafter existing (collectively, the "Superior Leases"); (b) that certain mortgage (the "Existing Mortgage") between Landlord and Chemical Bank, and all other mortgages that may now or hereafter affect the Land and/or the Building and/or any of the Superior Leases, whether or not the Existing Mortgage or any such mortgages shall also cover other land and/or buildings (the "Other Mortgages" and, together with the Existing Mortgage, the "Superior Mortgage"); (c) each and every advance made, or hereafter to be made, under the Superior Mortgages; (d) all renewals, modifications, replacements and extensions of such Superior Leases and/or Superior Mortgages; and (e) all spreaders and consolidations of the Superior Mortgages. This Section 6.01 shall be self-operative, and no further instrument of subordination shall be required. In confirmation of such subordination, Tenant shall, within ten (10) days after receipt thereof, execute and deliver any instrument that Landlord, the Lessor of any Superior Lease (each, a "Superior Lessor"), the holder of any Superior Mortgage (each, a "Superior Mortgagee") or any of their respective successors in interest may reasonably request to evidence such subordination. 6.02 In the event of any act or omission of Landlord that would give Tenant the right, immediately or after lapse of a period of time, to cancel or terminate this Lease, or to claim a partial or total eviction, Tenant shall not exercise such right (a) until it has given written notice of such act or omission to any Superior Mortgagee and any Superior Lessor whose name and address shall previously have been furnished to Tenant in writing by Landlord and (b) unless such act or omission shall be one that is not capable of being remedied by Landlord or such Superior Mortgagee or Superior Lessor within a reasonable period of time, until a reasonable period for remedying such act or omission shall have elapsed following the giving of such notice and following the time when such Superior Mortgagee or Superior Lessor shall have become entitled under such Superior Mortgage or Superior Lease, as the case may be, to remedy the same (which reasonable period shall in no event be less than the period to which Landlord would be entitled under this Lease or otherwise, after similar notice, to effect such remedy), provided that such Superior Mortgagee or Superior Lessor shall give Tenant written notice of its intention to remedy such act or omission and shall, with due diligence, commence and continue to do so. 6.03 If any Superior Mortgagee or Superior Lessor shall succeed to the rights of Landlord under this Lease, whether through possession or foreclosure action or delivery of a new lease or deed, then, at the request of the party so succeeding to Landlord's rights (herein sometimes called the "Successor Landlord") and upon such Successor Landlord's written agreement to accept Tenant's attornment, Tenant shall attorn to and recognize such Successor Landlord as Tenant's landlord under this Lease, and shall promptly execute and deliver any instrument that such Successor Landlord may reasonably request to evidence such attornment. -9- Upon such attornment, this Lease shall continue in full force and effect as, or as if it were, a direct lease between the Successor Landlord and Tenant, upon all of the terms, conditions and covenants as are set forth in this Lease and as shall be applicable after such attornment, except that the Successor Landlord shall not: (a) be liable for any previous act or omission of any prior landlord (including Landlord) under this Lease; (b) be subject to any offset, not expressly provided for in this Lease, that shall have theretofore accrued to Tenant against Landlord; or (c) be bound by any previous modification of this Lease not expressly provided for in this Lease or by any previous prepayment of more than one month's Base Rent or any Additional Rent then due, unless such modification or prepayment shall have been expressly approved in writing by such Superior Lessor or Superior Mortgagee, as the case may be. 6.04 Landlord agrees that it will use reasonable efforts to obtain from the holder of the Existing Mortgage, and from any other Superior Mortgagee and/or Superior Lessor, a non-disturbance agreement or a recognition agreement, as the case may be (each, a "Non-Disturbance Agreement"), for the benefit of Tenant, to the effect that as long as Tenant is not in default in the payment of Rental or of any of the other covenants and conditions of this Lease beyond any applicable grace period, and provided Tenant shall agree to attorn to and recognize any such Superior Mortgagee and/or Superior Lessor, as a Successor Landlord under this Lease and shall promptly execute and deliver any instrument that such Successor Landlord may reasonably request to evidence such attornment, that its rights as Tenant hereunder shall not be terminated and the possession of Tenant shall not be disturbed by any such Superior Mortgagee or Superior Lessor, and that any sale at foreclosure will be subject to this Lease. The inability of Landlord to obtain such Non-Disturbance Agreement, despite reasonable efforts on its part, shall not be deemed a default on Landlord's part of its obligations hereunder, or impose any claim in favor of Tenant against Landlord by reason thereof or affect the validity of this Lease in any manner whatsoever. Landlord's agreement to use reasonable efforts shall not impose any obligation upon Landlord to incur any cost or expense or to institute any legal or other proceeding in connection with obtaining such Non-Disturbance Agreement. ARTICLE 7 Quiet Enjoyment For so long as Tenant pays all of the Rental due hereunder and performs all of Tenant's other obligations hereunder, Tenant shall peaceably and quietly have, hold and enjoy the Demised -10- Premises, subject, nevertheless, to the obligations of this Lease and, as provided in Article 6, to the Superior Leases and the Superior Mortgages. ARTICLE 8 Assignment and Subletting 8.01 Tenant, for itself, its heirs, distributees, executors, administrators, legal representatives, successors and assigns, expressly covenants that it shall not assign, mortgage, or encumber this Lease or any of its rights or its estate hereunder or any part thereof, sublet the Demised Premises or any part thereof, or suffer or permit the Demised Premises, or any part thereof, to be used or occupied by others, without the prior written consent of Landlord in each instance. If this Lease be assigned in whole or in part, or if the Demised Premises or any part thereof be sublet or occupied by anybody other than Tenant, Landlord may, after default by Tenant, collect rent from the assignee, subtenant, or occupant, and apply the net amount collected to the Rental herein reserved, but no assignment, subletting, occupancy, or collection shall be deemed a waiver of the provisions hereof, the acceptance of the assignee, subtenant, or occupant as tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained. Landlord's consent to an assignment or subletting shall not, in any way, be construed to relieve Tenant from obtaining Landlord's express written consent to any further assignment or subletting. Except as otherwise set forth in Section 8.05 hereof, in no event shall any permitted sublessee assign or encumber its sublease, further sublet all or any portion of its sublet space, or otherwise suffer or permit the sublet space, or any part thereof, to be used or occupied by others, without Landlord's prior written consent in each instance. 8.02 If Tenant shall, at any time or times during the Term, desire to assign this Lease in whole or in part, or sublet all or part of the Demised Premises, Tenant shall give notice thereof to Landlord, which notice shall be accompanied by: (a) a copy of the proposed assignment or sublease, the effective or commencement date of which shall be not less than sixty (60) nor more than one hundred and eighty (180) days after the giving of such notice; (b) a statement setting forth, in reasonable detail, the identity of the proposed assignee or subtenant, the nature of its business and its proposed use of the Demised Premises; and (c) current financial information with respect to the proposed assignee or subtenant, including its most recent financial report. Such notice shall be deemed an offer from Tenant to Landlord whereby Landlord (or Landlord's designee) may, at its option: (i) terminate this Lease (if the proposed transaction is an assignment of this Lease or a sublease of all or substantially all of the Demised Premises); or (ii) terminate this Lease with respect to such space (the "Leaseback Space") (if the proposed transaction is a sublease of part of the Demised Premises for the remaining portion of the Term). Said options may be exercised by Landlord by notice to Tenant at any time within thirty (30) days after such notice has been given by Tenant to Landlord; and during such thirty (30) day period, Tenant shall not assign this Lease or sublet such space to any person. If Landlord shall fail to notify Tenant -11- within such thirty (30) day period of Landlord's intention to exercise any of its options under this Section 8.02, Landlord shall be deemed to have consented to the proposed assignment or subletting in accordance with the provisions of Section 8.06. 8.03 If Landlord exercises its option to terminate this Lease in the event that Tenant desires either to assign this Lease or to sublet all or substantially all of the Demised Premises, then this Lease shall end and expire upon the date that such assignment or subletting was to be effective or to commence, as the case may be, and the Base Rent and Additional Rent shall be apportioned and paid to such date. 8.04 If Landlord exercises its option to terminate this Lease with respect to the Leaseback Space in the event that Tenant desires to sublet the Leaseback Space for the remainder of the Term, then (a) this Lease shall end and expire, with respect to such part of the Demised Premises, on the date upon which the proposed sublease was to commence; (b) from and after such date, the Base Rent and Additional Rent shall be adjusted, based upon the proportion that the rentable area of the Demised Premises remaining bears to the total rentable area of the Demised Premises; and (c) Tenant shall pay to Landlord, upon demand, the costs (which shall be commercially reasonable) incurred by Landlord in physically separating such part of the Demised Premises and in complying with any laws and requirements of any public authorities relating to such separation. 8.05 In the event that Tenant complies with the provisions of Section 8.02 and Landlord does not exercise an option provided to it thereunder within the time provided therefor, and provided that Tenant is not in default of any of Tenant's obligations under this Lease after notice and the expiration of any applicable grace period, subject to the provisions of Section 8.02, Landlord's consent to the proposed assignment or sublease shall not be unreasonably withheld or delayed, provided and upon condition that: (a) in Landlord's sole judgment, the proposed assignee or subtenant is engaged in such a business, and the Demised Premises, or the relevant part thereof, will be used in such a manner, that: (i) is in keeping with the then standards of the Building; (ii) is limited to the use expressly permitted under this Lease; and (iii) will not violate any restrictive covenant as to use contained in any other lease of space in the Building; (b) the proposed assignee or subtenant is a reputable person of good character and with sufficient financial worth considering the responsibility involved, and Landlord has been furnished with proof thereof acceptable to Landlord in its sole discretion; (c) neither (i) the proposed assignee or sublessee nor (ii) any person that, directly or indirectly, controls, is controlled by, or is under common control with, the proposed assignee or sublessee, or any person who controls the proposed assignee or sublessee, is then an occupant of any part of the Building; -12- (d) the proposed assignee or sublessee is not a person with whom Landlord is then negotiating, or has negotiated within the past six (6) months, to lease space in the Building, provided that at the time of any such proposal to assign or sublet, Landlord has sufficient available space to let in the Building to such proposed assignee or subleasee other than the Demised Premises or that portion of the Demised Premises proposed to be sublet by Tenant; (e) the proposed sublease shall be in form reasonably satisfactory to Landlord and shall comply with the applicable provisions of this Article; (f) there shall not be more than one (1) subtenant per floor of the Demised Premises; (g) the amount of the aggregate rent to be paid by the proposed subtenant is not less than the then current market rent per rentable square foot for the Demised Premises as though the Demised Premises were vacant, and the rental and other terms and conditions of the sublease are the same as those contained in the proposed sublease furnished to Landlord pursuant to Section 8.02; (h) Tenant shall reimburse Landlord on demand for any reasonable costs that may be incurred by Landlord in connection with said assignment or sublease, including the costs of making investigations as to the acceptability of the proposed assignee or subtenant and legal costs incurred in connection with the granting of any requested consent; (i) Tenant shall not have: (i) advertised or publicized in any way the availability of the Demised Premises without prior notice to, and approval by, Landlord, which approval shall not be unreasonably withheld or delayed, nor shall any advertisement state the name (as distinguished from the address) of the Building or the proposed rental or (ii) listed the Demised Premises for subletting or assignment with a broker, agent or representative, other than the then managing agent of the Building or other agent designated by Landlord or approved by Landlord in advance in writing, or at a rental rate less than the greater of (x) the Base Rent and Additional Rent then payable hereunder for such space and (y) the prevailing rental rate at which Landlord is then offering to lease other comparable space in the Building; (j) the sublease shall not allow use of the Demised Premises or any part thereof for purposes other than those set forth in Article 2; (k) the sublease shall not provide for an option on behalf of the subtenant thereunder to extend or renew the term of such sublease beyond noon of the day immediately prior to the Expiration Date. 8.06 If, after receipt of Tenant's notice delivered in accordance with the provisions of Section 8.02, Landlord shall fail to notify Tenant within thirty (30) days of -13- Landlord's intention to exercise its rights pursuant to Section 8.02 or of Landlord's consent to or disapproval of the proposed assignment or subletting pursuant to the provisions of Section 8.05, or if Landlord shall have consented to such subletting as provided in Section 8.05 hereof, Tenant shall have the right to assign or sublease, as the case may be, all or part of the Demised Premises to the proposed assignee or subtenant on the same terms and conditions set forth in the proposed assignment or sublease, as the case may be, and in Section 8.05, subject to the terms and conditions of this Lease. In the event that (a) Landlord fails to exercise any of its options under Section 8.02 and consents or is deemed to have consented to a proposed assignment or sublease and (b) Tenant fails to execute and deliver the assignment or sublease to which Landlord consented, or was deemed to have consented, within ninety (90) days after the giving or deemed giving of such consent, then Tenant shall again comply with all of the provisions and conditions of Section 8.02 before assigning this Lease in whole or in part or subletting all or part of the Demised Premises. 8.07 Each subletting pursuant to this Article 8 shall be subject to all of the covenants, agreements, terms, provisions and conditions contained in this Lease. In the event of any subletting to any subtenant and/or acceptance of rent or additional rent by Landlord from any subtenant, Tenant shall and will remain fully liable for the payment of the Base Rent and Additional Rent due, and to become due, hereunder, for the performance of all of the covenants, agreements, terms, provisions and conditions contained in this Lease on the part of Tenant to be performed and for all acts and omissions of any subtenant or any other person claiming under or through any subtenant that shall be in violation of any of the obligations of this Lease, and any such violation shall be deemed to be a violation by Tenant. Tenant further agrees that, not-withstanding any such subletting, no other and further subletting of the Demised Premises by Tenant, or any person claiming through or under Tenant, shall, or will be, made, except upon compliance with, and subject to, the provisions of this Article 8. If Landlord shall decline to give its consent to any proposed assignment or sublease, or if Landlord shall exercise any of its options under Section 8.02, Tenant shall indemnify, defend and hold Landlord harmless from and against any and all losses, liabilities, damages, costs and expenses (including reasonable counsel fees) resulting from any claims that may be made against Landlord by the assignee or subtenant or by any brokers or other persons claiming a commission or similar compensation in connection with the proposed assignment or sublease. 8.08 With respect to each and every sublease or subletting, whether made with Landlord's consent pursuant to Section 8.01 or without Landlord's consent pursuant to Section 8.11, it is further agreed that: (a) no subletting shall be for a term ending later than one (1) day prior to the Expiration Date; -14- (b) no sublease shall be valid, and no subtenant shall take possession of the Demised Premises or any part thereof, until an executed counterpart of such sublease has been delivered to Landlord; and (c) each sublease shall provide that it is subject and subordinate to this Lease and to the matters to which this Lease is or shall be subordinate, and that, in the event of termination, reentry, or dispossession by Landlord under this Lease, Landlord may, at its option, take over all of the right, title and interest of Tenant as sublandlord under such sublease, and such subtenant shall, at Landlord's option, attorn to Landlord pursuant to the then executory provisions of this Lease, except that Landlord shall not: (i) be liable for any previous act or omission of Tenant under such sublease; (ii) be subject to any offset, not expressly provided in such sublease, that theretofore accrued to such subtenant against Tenant; or (iii) be bound by any previous modification of such sublease which was not consented to in writing by Landlord or by any previous prepayment of more than one month's Base Rent or any Additional Rent then due. 8.09 Any assignment or transfer, whether made with Landlord's consent pursuant to Section 8.01 or without Landlord's consent pursuant to Section 8.11 (b), shall be made only if, and shall not be effective until, the assignee shall execute, acknowledge and deliver to Landlord an agreement, in form and substance satisfactory to Landlord, whereby the assignee shall assume all of the obligations of this Lease on the part of Tenant to be performed and observed and whereby the assignee shall agree that the provisions contained in Section 8.01 shall, notwithstanding such assignment or transfer, continue to be binding upon it in respect of all future assignments and transfers. The original named Tenant covenants that, notwithstanding any assignment or transfer, whether or not in violation of the provisions of this Lease, and notwithstanding the acceptance of Base Rent and/or Additional Rent by Landlord from an assignee, transferee, or any other party, the original named Tenant shall remain fully liable for the payment of the Base Rent and Additional Rent and for the other obligations of this Lease on the part of Tenant to be performed or observed. 8.10 If Landlord shall give its consent to any assignment of this Lease or to any sublease, Tenant shall, in consideration therefor, pay to Landlord, as Additional Rent: (a) in the case of an assignment, an amount equal to fifty (50%) percent of (x) all sums and other consideration paid to Tenant by the assignee for, or by reason of, such assignment (including all sums paid for the sale of Tenant's fixtures, leasehold improvements, equipment, furniture, furnishings, or other personal property, less the then net unamortized or undepreciated cost thereof determined on the basis of Tenant's federal income tax returns) less (y) the sum of (i) the amounts paid by Tenant for brokerage and legal fees with respect to such assignment provided such fees are reasonable and Landlord receives satisfactory verification of the payment of same, and (ii) the amounts paid by Tenant expressly and solely for the purpose of preparing the Demised Premises for such assignee's occupancy as determined by Tenant's federal income tax returns, provided Landlord receives satisfactory verification of payment of same; and -15- (b) in the case of a sublease, fifty (50%) percent of any rents, additional charges, or other cost or consideration payable under the sublease by the subtenant to Tenant that are in excess of the Base Rent and Additional Rent accruing during the term of the sublease in respect of the subleased space (at the rate per square foot payable by Tenant hereunder) pursuant to the terms hereof (including all sums paid for the sale or rental of Tenant's fixtures, leasehold improvements, equipment, furniture, or other personal property, less, in the case of the sale thereof, the then net unamortized or undepreciated cost thereof determined on the basis of Tenant's federal income tax returns) less (i) the amounts paid by Tenant for brokerage and legal fees with respect to such sublease provided such fees are reasonable and Landlord receives satisfactory verification of the payment of same, and (ii) the amounts paid by Tenant expressly and solely for the purpose of preparing the Demised Premises or portion thereof for such sublessee's occupancy if not used by Tenant subsequent to the expiration of the term of the sublease, provided Landlord receives satisfactory verification of payment of same; The sums payable under subsections (a) and (b) above shall be paid to Landlord as and when payable by the assignee or subtenant, as the case may be, to Tenant. 8.11 (a) Either a transfer (including the issuance of treasury stock or the creation and issuance of new stock or a new class of stock) of a controlling interest in the shares of Tenant (if Tenant is a corporation or trust) or a transfer of a majority of the total interest in Tenant (if Tenant is a partnership or other entity) at any one time or over a period of time through a series of transfers, shall be deemed an assignment of this Lease and shall be subject to all of the provisions of this Article 8, including, without limitation, the requirement that Tenant obtain Landlord's prior consent thereto. The transfer of shares of Tenant (if Tenant is a corporation or trust) for purposes of this Section 8.11 shall not include the sale of shares by persons other than those deemed "insiders" within the meaning of the Securities Exchange Act of 1934, as amended, which sale is effected through the "over-the-counter market" or through any recognized stock exchange. (b) As long as Health Management Systems, Inc. is Tenant, Tenant shall have the privilege, subject to the terms and conditions hereinafter set forth, without the consent of Landlord and without Landlord having the right granted in Section 8.02(i) hereof to recapture, to assign its interest in this Lease (i) to any corporation which is a successor to Tenant either by merger or consolidation, (ii) to a purchaser of all or substantially all of Tenant's assets (pro-vided such purchaser shall have also assumed substantially all of Tenant's liabilities) or (iii) to a Person which shall (1) Control, (2) be under the Control of, or (3) be under common Control with Tenant. Notwithstanding anything to the contrary in this Article 8, if the provisions of this Section 8.11(b)(i), (ii) or (iii) shall be applicable to any assignment of this Lease, then the provisions of Section 8.10(a) and (b) shall not be applicable. 8.12 The joint and several liability of Tenant and any immediate or remote successor in interest to Tenant, and the due performance of the obligations of this Lease on -16- Tenant's part to be performed and observed, shall not be discharged, released, or impaired in any respect by any agreement or stipulation made by Landlord extending the time of, or modifying any of the obligations of, this Lease, or by any waiver or failure of Landlord to enforce any of the obligations of this Lease. 8.13 The listing of the name of a person or entity other than that of Tenant, whether on the doors of the Demised Premises, on the Building directory, or otherwise, shall not operate to vest any right or interest in this Lease or in the Demised Premises in such person or entity, nor shall it be deemed to be an indication that Landlord has consented to any assignment or transfer of this Lease, to any sublease of the Demised Premises, or to the use or occupancy thereof by others. ARTICLE 9 Compliance With Laws and Requirements of Public Authorities 9.01 (a) Tenant shall give prompt notice to Landlord of any notice it receives of the violation of any Requirement (hereinafter defined) and, at Tenant's sole cost and expense, Tenant shall comply with all Requirements that shall, with respect to the Demised Premises, the use and occupancy thereof, or the abatement of any nuisance, impose any violation, order, or duty on Landlord or Tenant, arising from: (i) Tenant's use of the Demised Premises; (ii) the manner of conduct of Tenant's business or operation of its installations, equipment, or other property therein; (iii) any cause or condition created by or at the instance of Tenant, including, without limitation, Tenant's Changes performed by or on behalf of Tenant; or (iv) the breach of any of Tenant's obligations hereunder. However, Tenant shall not be so required to make any structural or other substantial change in the Demised Premises unless the requirement arises from a cause or condition referred to in subsection (ii), (iii), or (iv) above. Furthermore, Tenant need not comply with any such Requirement for so long as Tenant shall be contesting the validity thereof, or the applicability thereof to the Demised Premises, in accordance with Section 9.02. Landlord, at its expense, shall comply with all Requirements applicable to the Demised Premises and the Building other than those Requirements with which Tenant or other tenants of the Building are required to comply subject to Landlord's right to contest the legality or applicability of same. (b) As used herein, "Requirements" shall mean all present and future laws, rules, orders, ordinances, regulations, statutes, requirements, codes and executive orders, extraordinary as well as ordinary, of all Governmental Authorities now existing or hereafter created, and of any and all of their departments and bureaus, and of any applicable fire rating bureau, or other body exercising similar functions, affecting the Land, the Building or any portion thereof, or any street, avenue or sidewalk comprising a part of or in front thereof or any vault in -17- or under the same, or requiring removal of any encroachment, or affecting the main-tenance, use or occupation of the Land, the Building or any portion thereof. (c) As used herein, "Governmental Authority (Authorities)" shall mean the United States of America, the State of New York, the City of New York, any political subdivision thereof and any agency, department, commission, board, bureau or instrumentality of any of the foregoing, or any quasi-governmental authority, now existing or hereafter created, having jurisdiction over the Land, the Building or any portion thereof. 9.02 Tenant, at its sole cost and expense and after notice to Landlord, may contest by appropriate proceedings prosecuted diligently and in good faith, the legality or applicability of any Requirement affecting the Demised Premises, provided that (a) Landlord (or any Indemnitee [hereinafter defined]) shall not be subject to criminal penalty, imprisonment or to prosecution for a crime, nor shall the Land, the Building or any part thereof be subject to being condemned or vacated, nor shall the certificate of occupancy for the Demised Premises or the Building be suspended or threatened to be suspended by reason of non-compliance or by reason of such contest; (b) before the commencement of such contest, if Landlord or any Indemnitee may be subject to any civil fines or penalties or if Landlord may be liable to any independent third party as a result of such noncompliance, Tenant shall furnish to Landlord either (i) a bond of a surety company satisfactory to Landlord, in form and substance reasonably satisfactory to Landlord, and in an amount equal to one hundred twenty percent (120%) of the sum of (A) the cost of such compliance, (B) the civil penalties or fines that may accrue by reason of such non-compliance (as reasonably estimated by Landlord), and (C) the amount of such liability to independent third parties (as reasonably estimated by Landlord), and shall indemnify Landlord (and any Indemnitee) against the cost of such compliance and liability resulting from or incurred in connection with such contest or non-compliance (except that Tenant shall not be required to furnish such bond to Landlord if it has otherwise furnished any similar bond required by law to the appropriate Governmental Authority and has named Landlord as a beneficiary thereunder) or (ii) other security reasonably satisfactory in all respects to Landlord; (c) such non-compliance or contest shall not constitute or result in a violation (either with the giving of notice or the passage of time or both) of the terms of any Superior Mortgage or Superior Lease, or if such Superior Lease or Superior Mortgage shall condition such non-compliance or contest upon the taking of action or furnishing of security by Landlord, such action shall be taken or such security shall be furnished at the expense of Tenant; and (d) Tenant shall keep Landlord regularly advised as to the status of such proceedings. Without limiting the applicability of the foregoing, Landlord (or any Indemnitee) shall be deemed subject to prosecution for a crime if Landlord (or any Indemnitee), a Superior Lessor, a Superior Mortgagee, or any of their officers, directors, partners, shareholders, agents or employees is charged with a crime of any kind or degree whatsoever, whether by service of a summons or otherwise, unless such charges are withdrawn ten (10) days before Landlord (or any Indemnitee), such Superior Lessor or Superior Mortgagee or such officer, director, partner, shareholder, agent or employee, as the case may be, is required to plead or answer thereto. -18- ARTICLE 10 Insurance 10.01 Tenant shall not violate, or permit the violation of, any condition imposed by the standard fire insurance policy then issued for office buildings in the Borough of Manhattan, City of New York, and shall not do, permit anything to be done, keep, or permit anything to be kept, in the Demised Premises that would: (a) subject Landlord to any liability or responsibility for personal injury, death, or property damage; (b) increase the fire or other casualty insurance rate on the Building or the property therein over the rate that would otherwise then be in effect (unless Tenant pays the resulting premium as provided in Section 10. 07); or (c) result in insurance companies of good standing refusing to insure the Building or any of such property in amounts satisfactory to Landlord. 10.02 Tenant covenants to provide, on or before the Commencement Date, and to keep in force during the term hereof, the following insurance coverage: (a) for the benefit of Landlord and Tenant, a comprehensive policy of liability insurance protecting Landlord and Tenant against any liability whatsoever occasioned by accident on or about the Demised Premises or any appurtenances thereto. Such policy is to be written by good and solvent insurance companies authorized to do business in the State of New York, and the limits of liability thereunder shall not be less than the respective amounts of Three Million ($3,000,000.00) Dollars of combined single limit coverage on a per occurrence basis in respect of personal injury or death and Five Hundred Thousand ($500,000.00) Dollars in respect of property damage. Such insurance may be carried under a blanket policy or policies covering the Demised Premises and other locations of Tenant, if any; and (b) fire and extended coverage in an amount adequate to cover the cost of replacement of all personal property, fixtures, furnishing and equipment, including Tenant's work, located in the Demised Premises. Such policy shall be written by good and solvent insurance companies authorized to do business in the State of New York and rated in Best's Insurance Guide, or any successor thereto (or if there be none, an organization having a national reputation) as having a general policyholder rating of "A" and a financial rating of at least "XIII." Prior to the time that such insurance is first required to be carried by Tenant, and, thereafter, at least fifteen (15) days prior to the expiration of any such policies, Tenant agrees to deliver to Landlord certificates evidencing such insurance, provided that said certificates contain an endorsement that such insurance may not be modified or cancelled except upon fifteen (15) days' notice to Landlord, together with evidence of payment of same. Tenant's failure to provide and keep in force the aforementioned insurance shall be regarded as a material default hereunder, -19- entitling Landlord to exercise any or all of the remedies as provided in this Lease in the event of Tenant's default. 10.03 Landlord and Tenant shall each endeavor to secure an appropriate clause in, or an endorsement upon, each fire or extended coverage policy obtained by it and covering their respective interests in the Building, the Demised Premises, or the personal property, fixtures and equipment located therein or thereon, pursuant to which the respective insurance companies waive subrogation or permit the insured, prior to any loss, to agree with a third party to waive any claim it might have against said third party. The waiver of subrogation or permission for waiver of any claim hereinbefore referred to shall extend to the agents of each party and its employees and, in the case of Tenant, shall also extend to all other persons and entities occupying or using the Demised Premises in accordance with the terms of this Lease. If, and to the extent that, such waiver or permission can be obtained only upon payment of an additional charge, then, except as provided in Sections 10.04 and 10.05, the party benefitting from the waiver or permission shall pay such charge upon demand, or shall be deemed to have agreed that the party obtaining the insurance coverage in question shall be free of any further obligations under the provisions hereof relating to such waiver or permission. 10.04 In the event that Landlord shall be unable at any time to obtain one of the provisions referred to in Section 10.03 in any of its insurance policies, Landlord shall, at Tenant's option, cause Tenant to be named in such policy or policies as one of the assureds, but if any additional premium shall be imposed for the inclusion of Tenant as such an assured, Tenant shall pay such additional premium upon demand. In the event that Tenant shall have been named as one of the assureds in any of Landlord's policies in accordance with the foregoing, Tenant shall endorse promptly to the order of Landlord, without recourse, any check, draft, or order for the payment of money representing the proceeds of any such policy, or any other payment growing out of or connected with said policy, and Tenant hereby irrevocably waives any and all rights in and to such proceeds and payments. 10.05 In the event that Tenant shall be unable at any time to obtain one of the provisions referred to in Section 10.03 in any of its insurance policies, Tenant shall cause Landlord to be named in such policy or policies as one of the assureds, but if any additional premium shall be imposed for the inclusion of Landlord as such an assured, Landlord shall pay such additional premium upon demand or Tenant shall be excused from its obligations under Section 10.03 with respect to the insurance policy or policies for which such additional premiums would be imposed. In the event that Landlord shall have been named as one of the assureds in any of Tenant's policies in accordance with the foregoing, Landlord shall endorse promptly to the order to Tenant, without recourse, any check, draft, or order for the payment of money representing the proceeds of any such policy, or any other payment growing out of or connected with said policy, and Landlord hereby irrevocably waives any and all rights in and to such proceeds and payments. -20- 10.06 Subject to the provisions of Sections 10.03, 10.04 and 10.05, and insofar as may be permitted by the terms of the insurance policies carried by it, each party hereby releases the other with respect to any claim (including a claim for negligence) that it might otherwise have against the other party for loss, damages, or destruction with respect to its property by fire or other casualty (including rental value or business interruption, as the case may be) occurring during the term of this Lease. 10.07 If, by reason of failure of Tenant to comply with the provisions of Section 9.01 or Section 10.01, the rate of fire insurance with extended coverage on the Building or equipment or other property of Landlord shall be higher than it otherwise would be, Tenant shall reimburse Landlord, on demand, for that part of the premiums for fire insurance and extended coverage paid by Landlord because of such failure on the part of Tenant. 10.08 If any dispute shall arise between Landlord and Tenant with respect to the incurrence or amount of any additional insurance premium referred to in Section 10.07, the dispute shall be determined by arbitration. 10.09 A schedule or make up of rates for the Building or the Demised Premises, as the case may be, issued by the New York Fire Insurance Rating Organization or other similar body making rates for fire insurance and extended coverage for the premises concerned, shall be conclusive evidence of the facts therein stated and of the several items and charges in the fire insurance rate with extended coverage then applicable to such premises. ARTICLE 11 Rules and Regulations 11.01 Tenant and its employees and agents shall faithfully observe and comply with the Rules and Regulations annexed hereto as Exhibit C and with such reasonable changes thereto (whether by modification, elimination, or addition) as Landlord, at any time or times hereafter, may make and communicate in writing to Tenant, provided that such changes do not unreasonably affect the conduct of Tenant's business in the Demised Premises (except with respect to any such changes that are required by any governmental law, rule, regulation, ordinance, or similar decree). In the event, however, that there is any conflict or inconsistency between the provisions of this Lease and any of the Rules and Regulations, as originally promulgated or as changed, the provisions of this Lease shall prevail. 11.02 Nothing in this Lease contained shall be construed to impose upon Landlord any duty or obligation to Tenant to enforce the Rules and Regulations, or the terms, covenants, or conditions contained in any other lease, against any other tenant, and Landlord shall not be liable to Tenant for violation of the same by any other tenant or such tenant's employees, agents, -21- or visitors. However, Landlord shall not enforce any of the Rules and Regulations in such a manner as to discriminate against Tenant or any person claiming under or through Tenant. Landlord shall not enforce any rule or regulation against Tenant if Tenant establishes that Landlord is not generally enforcing such rule or regulation in the Building. ARTICLE 12 Tenant's Changes 12.01 Tenant may, from time to time during the Term and at its sole expense, make such alterations, additions, installations, substitutions, improvements and decorations (collectively, "Changes") in and to the Demised Premises, excluding structural Tenant's Changes, as Tenant may reasonably consider necessary for the conduct of its business therein, on the following conditions: (a) the outside appearance or strength of the Building, or of any of its structural parts, shall not be affected; (b) except as may be expressly permitted by the provisions of Article 38, no part of the Building outside of the Demised Premises shall be physically affected; (c) the proper functioning of any of the Building Systems shall not be adversely affected, and the usage of such Building Systems by Tenant shall not be materially increased; (d) in performing the work involved in making such Tenant's Changes, Tenant shall observe, and be bound by, all of the conditions and covenants contained in this Article 12; and (e) before proceeding with any Change costing in excess of $25,000 (exclusive of the costs of decorating work and items constituting Tenant's Property, as defined in Article 13, and of any architect's and engineer's fees), or any Change to the Building Systems, Tenant shall submit to Landlord, for Landlord's approval, which approval shall not be unreasonably withheld or delayed provided the remaining conditions of this Section 12.01 have been satisfied, plans and specifications for the work to be done. Landlord may, as a condition of its consent, require Tenant to make revisions in and to the plans and specifications with respect to any Tenant's Change. 12.02 Tenant shall, at its expense, obtain all necessary governmental permits and certificates for the commencement and prosecution of Tenant's Changes, and, upon completion, for final approval thereof, and shall cause Tenant's Changes to be performed in compliance -22- therewith, as well as with all applicable Requirements, in a good and workmanlike manner, using new materials and equipment of a quality and class at least equal to the installations in the Building existing on the Commencement Date. Tenant's Changes shall be performed in such a manner as not to unreasonably interfere with or delay, and (unless Tenant shall indemnify Landlord therefor to the latter's reasonable satisfaction) as not to impose any additional expense upon Landlord in the maintenance or operation of the Building. Throughout the performance of Tenant's Changes, Tenant shall, at its expense, carry, or cause to be carried, workers' com-pensation insurance in statutory limits and general liability insurance for any occurrence in or about the Building as set forth in Section 10.02 hereof. All such insurance policies shall name Landlord and its agents as additional insureds, be in such limits as Landlord may reasonably prescribe and be placed with insurers reasonably satisfactory to Landlord. Tenant shall furnish Landlord with satisfactory evidence that such insurance is in effect at or before the commencement of Tenant's Changes and, on request, at reasonable intervals thereafter during the continuance of Tenant's Changes. If any of Tenant's Changes shall involve the removal of any fixtures, equipment, or other property in the Demised Premises that are not Tenant's Property, such fixtures, equipment, or other property shall be promptly replaced, at Tenant's expense, with new fixtures, equipment, or other property (as the case may be) of like utility and at least equal value unless Landlord shall otherwise expressly consent in writing, and Tenant shall, upon Landlord's request, store and preserve, at Tenant's sole cost and expense, any such fixtures, equipment, or property so removed and shall return same to Landlord in good condition, subject to reasonable wear and tear, upon the expiration or sooner termination of this Lease. All electrical and plumbing work in connection with Tenant's Changes shall be per-formed by contractors or subcontractors licensed therefor by all governmental agencies having or asserting jurisdiction and acceptable to Landlord. 12.03 Tenant shall, at its expense and with diligence and dispatch, procure the cancellation or discharge of all notices of violation arising from, or otherwise connected with, Tenant's Changes that shall be issued by the Department of Buildings or any other public or quasi-public authority having or asserting jurisdiction on or before the date that shall be thirty (30) days after Tenant receives notice of such violation. Tenant shall defend, indemnify and save Landlord harmless from and against any and all mechanic's and other liens filed in connection with Tenant's Changes, including the liens of any security interest in, conditional sales of, or chattel mortgages upon, any materials, fixtures, or articles so installed in and constituting part of the Demised Premises, and against all costs, expense and liabilities incurred in connection with any such lien, security interest, conditional sale, or chattel mortgage or any action or proceeding brought thereon. Subject to the provisions of the succeeding sentence, Tenant, at its expense, shall procure the satisfaction or discharge of all such liens within twenty (20) days after the earlier to occur of (i) the date on which Tenant receives notice of such lien and (ii) the date Landlord makes written demand therefor. However, nothing herein contained shall prevent Tenant from contesting, in good faith and at its own expense, any such notice of violation, provided that Tenant shall comply with the provisions of Section 9.02. -23- 12.04 Tenant agrees that the exercise of its rights pursuant to the provisions of this Article 12 shall not be done in a manner that would: (a) create any work stoppage, picketing, labor disruption, or dispute; (b) violate Landlord's union contracts affecting the Land and/or Building; or (c) interfere with the business of Landlord or any tenant or occupant of the Building. In the event of the occurrence of any condition described above arising from Tenant's exercise of any of its rights pursuant to the provisions of this Article 12, Tenant shall, immediately, upon notice from Landlord, cease the manner of exercise of such right giving rise to such condition. In the event that Tenant fails to cease such manner of exercise of its rights as aforesaid, Landlord, in addition to any rights available to it under this Lease and pursuant to law, shall have the right to injunction without notice. With respect to Tenant's Changes, Tenant shall make all arrangements for, and pay all expenses incurred in connection with, use of the freight elevators servicing the Demised Premises. 12.05 (a) Landlord shall contribute an amount not to exceed Five Hundred Ninety-Nine Thousand Seven Hundred Sixty Dollars ($599,760) in the aggregate (the "Tenant Fund") toward the cost of (i) Tenant's Work in accordance with the provisions of Section 12.05(b) and (c) and (ii) other Tenant Changes throughout the Term in accordance with the provisions of Section 12.05(d) and (e). (b) Landlord shall disburse a portion of the Tenant Fund to Tenant from time to time, within thirty (30) Business Days after receipt of the items set forth in Section 12.05(c) hereof, provided that on the date of a request and on the date of disbursement from the Tenant Fund no Event of Default shall have occurred and be continuing. Disbursements from the Tenant Fund shall not be made more frequently than monthly, and shall be in an amount equal to the aggregate amounts theretofore paid or payable (as certified by an officer of Tenant and Tenant's independent, licensed architect) to Tenant's contractors, subcontractors and materialmen which have not been the subject of a previous disbursement from the Tenant Fund multiplied by a fraction, the numerator of which is 599,760 and the denominator of which is the total cost of Tenant's Work as estimated by Tenant's independent licensed architect and as approved by Landlord (which approval shall not be unreasonably withheld or delayed), which fraction shall be subject to readjustment as provided by Section 12.05(c) hereof (but in no event shall such fraction be greater than one (1)). (c) Landlord's obligation to make disbursements from the Tenant Fund shall be subject to Landlord's verification of the total cost of Tenant's Work as estimated by Tenant's independent licensed architect and receipt of: (a) a request for such disbursement from Tenant signed by an officer of Tenant, together with the certification required by Section 12.05(b) hereof, (b) copies of all receipts, invoices and bills for the work completed and materials furnished in connection with Tenant's Work and incorporated in the Demised Premises which are to be paid from the requested disbursement or which have been paid by Tenant and for which Tenant is seeking reimbursement, (c) copies of all contracts, work orders, change orders and other materials relating to the work or materials which are the subject of the requested disbursement or -24- reimbursement, (d) if requested by Landlord, waivers of lien from all contractors, subcontractors and materialmen involved in the performance of Tenant's Work relating to the portion of Tenant's Work theretofore performed and materials theretofore provided and for which previous disbursements and/or the requested disbursement has been or is to be made (except to the extent such waivers of lien were previously furnished to Landlord upon a prior request), and (e) a certificate of Tenant's independent licensed architect stating (i) that, in his opinion, the portion of Tenant's Work theretofore completed and for which the disbursement is requested was performed in a good and workerlike manner and substantially in accordance with the final detailed plans and specifications for such Tenant's Work, as approved by Landlord, (ii) the percentage of completion of Tenant's Work as of the date of such certificate, and (iii) the revised estimated total cost to complete Tenant's Work. If the revised estimated total cost of Tenant's Work increases above the original estimated total cost of Tenant's Work by more than five percent (5%), then the denominator of the fraction referred to in Section 12.05(b) hereof shall be adjusted appropriately. (d) In no event shall the aggregate amount paid by Landlord to Tenant under this Section 12.05 exceed the amount of the Tenant Fund. Upon the completion of Ten-ant's Work and satisfaction of the conditions set forth in Section 12.05(e) hereof, any amount of the Tenant Fund which has not been previously disbursed (the "Tenant Fund Balance") may be disbursed by Landlord toward the cost of Tenant's Changes during the Term in accordance with the provisions of Section 12.05(b) and (c). Notwithstanding the foregoing, (i) the provision of Section 12.05(b) requiring that the aggregate amount of a requested disbursement be multiplied by a fraction to determine the portion of the disbursement to be paid and (ii) clauses (ii) and (iii) and the last sentence of Section 12.05(c) shall not be deemed to apply to any requested disbursement from the Tenant Fund Balance with respect to a Tenant Change which is not part of Tenant's Work. Upon the disbursement of the entire Tenant Fund, Landlord shall have no further obligation or liability whatsoever to Tenant for further disbursement of any portion of the Tenant Fund to Tenant. It is expressly understood and agreed that, provided no Event of Default shall have occurred and be continuing, Tenant shall complete, at its sole cost and expense, Tenant's Work, whether or not the Tenant Fund Balance is sufficient to fund such completion. Any costs to complete Tenant's Work in excess of the Tenant Fund shall be the sole responsibility and obligation of Tenant. It is further expressly understood and agreed that, provided no Event of Default shall have occurred and be continuing, Tenant may assign its right, title and interest in and to the Tenant Fund Balance to any assignee under an assignment or any sublessee under a sublease, provided such assignment or sublease has been entered into by Tenant in accordance with the provisions of Article 8. (e) Within thirty (30) days after completion of Tenant's Work and any Tenant Change which is not part of Tenant's Work and for which Tenant has requested a disbursement from the Tenant Fund in accordance with the provisions of this Section 12.05, Tenant shall deliver to Landlord general releases and waivers of lien from all contractors, subcontractors and materialmen involved in the performance of Tenant's Work or such Tenant's Change, as the case may be, and the materials furnished in connection therewith (unless same -25- previously were furnished pursuant to Section 12.05(c) hereof), and a certificate from Tenant's independent licensed architect certifying that (i) in his opinion Tenant's Work or such Tenant's Change, has been performed in a good and workerlike manner and completed in accordance with the final detailed plans and specifications for such Tenant's Work or Tenant's Change, as approved by Landlord and (ii) all contractors, subcontractors and materialmen have been paid for Tenant's Work or such Tenant's Change, and materials furnished through such date. ARTICLE 13 Tenant's Property 13.01 All improvements and installations constituting Landlord's Work, and all other fixtures, improvements and appurtenances attached to or built into the Demised Premises on the Commencement Date or during the term of this Lease, whether or not by or at the expense of Tenant, shall be and remain a part of the Demised Premises, shall be deemed the property of Landlord and shall not be removed by Tenant, except as hereinafter in this Article 13 expressly provided. 13.02 Provided the same are not, or were not, included in Landlord's Work, all paneling, movable partitions, lighting fixtures, special cabinet work, other business and trade fixtures, machinery and equipment, communications equipment and office equipment, whether or not attached to or built into the Demised Premises, which are installed in the Demised Premises by or for the account of Tenant, without expense to Landlord, and which can be removed without permanent structural damage to the Building, all furniture, furnishings and other articles of movable personal property owned by Tenant and located in the Demised Premises (collectively, "Tenant's Property"), shall be and shall remain the property of Tenant and may be removed by it at any time during the term of this Lease, provided that if any of Tenant's Property is removed, Tenant or any party or person entitled to remove same shall repair or pay the cost of repairing any damage to the Demised Premises or to the Building resulting from such removal. Except as expressly provided to the contrary herein, any equipment or other property for which Landlord shall have granted any allowance or credit to Tenant, or that has replaced such items originally provided by Landlord at Landlord's expense, shall not be deemed to have been installed by or for the account of Tenant without expense to Landlord, and shall not be considered Tenant's Property. 13.03 At or before the Expiration Date, or as promptly as practicable after the Expiration Date (if same occurs earlier than the Fixed Expiration Date), Tenant, at its expense, shall remove from the Demised Premises all of Tenant's Property, except such items thereof as Tenant shall have expressly agreed in writing with Landlord were to remain and to become the property of Landlord, and shall fully repair any damage to the Demised Premises or the Building resulting from such removal. Tenant's obligation herein shall survive the expiration or earlier termination of this Lease. -26- 13.04 Any other items of Tenant's Property (except money, securities and other like valuables) that shall remain in the Demised Premises after the Expiration Date or after a period of fifteen (15) days following an earlier termination date, may, at the option of Landlord, be deemed to have been abandoned, and, in such event, either may be retained by Landlord as its property or may be disposed of, without accountability, at Tenant's expense and in such manner as Landlord may see fit. ARTICLE 14 Repairs and Maintenance 14.01 Tenant shall take good care of the Demised Premises. Tenant, at its expense, shall promptly make all repairs, ordinary or extraordinary, interior or exterior, structural or otherwise, in and about the Demised Premises and the Building, as shall be required by reason of: (a) the performance or existence of Tenant's Work or Tenant's Changes; (b) the installation, use, or operation of Tenant's Property in the Demised Premises; (c) the moving of Tenant's Property into or out of the Building; or (d) the misuse or neglect of Tenant or any of its employees, agents, or contractors. However, Tenant shall not be responsible for any of such repairs that are required by reason of Landlord's neglect or other fault in the manner of performing any of Tenant's Work or Tenant's Changes that may be undertaken by Landlord for Tenant's account or that are otherwise required by reason of neglect or other fault of Landlord or its employees, agents, or contractors. Except if required by the neglect or other fault of Landlord or its employees, agents, or contractors, Tenant, at its expense, shall: (i) repair or replace all scratched, damaged, or broken doors or other glass in or about the Demised Premises; (ii) repair, maintain and replace all wall and floor coverings in the Demised Premises; (iii) repair and maintain all lighting fixtures therein; and (iv) cause the Demised Premises to be exterminated from time to time to the satisfaction of Landlord. Tenant will not clean nor require, permit, suffer or allow any window in the Demised Premises to be cleaned from the outside in violation of Section 202 of the New York State Labor Law or any other applicable law or of the Rules of the Board of Standards and Appeals, or of any other Board or body having or asserting jurisdiction. 14.02 Landlord shall operate, maintain and make all necessary repairs (both structural and non-structural) to the part of Building Systems which provide service to the Demised Premises (including the distribution portions of such Building Systems located within the Demised Premises) and the public portions of the Building, both exterior and interior, in conformance with the standards applicable to non-institutional office buildings in Manhattan, except for those repairs for which Tenant is responsible pursuant to any other provisions of this Lease. 14.03 Except as expressly otherwise provided in this Lease, Landlord shall have no liability to Tenant by reason of any inconvenience, annoyance, interruption, or injury to -27- business arising from Landlord's making any repairs or Changes that Landlord is required or permitted by this Lease, or required by law, to make in or to any portion of the Building or the Demised Premises, or in or to the fixtures, equipment, or appurtenances of the Building or the Demised Premises, provided that Landlord shall use due diligence with respect thereto and shall perform such work, except in case of emergency, at times reasonably convenient to Tenant and otherwise in such a manner as will not materially interfere with Tenant's use of the Demised Premises. Notwithstanding the foregoing, Landlord shall have no obligation to employ contractors or labor at so-called overtime or other premium pay rates or to incur any other overtime costs or expenses whatsoever. ARTICLE 15 Electricity 15.01 Tenant shall obtain and pay for Tenant's entire separate supply of electric current by direct application to and arrangement with the public utility company servicing the Building. Landlord will permit its electric feeders, risers and wiring serving the Demised Premises to be used by Tenant to the extent available and safely capable of being used for such purpose. 15.02 Any additional risers, feeders or other equipment or service proper or necessary to supply Tenant's electrical requirements, upon written request of Tenant, will be installed by Landlord, at the sole cost and expense of Tenant, if, in Landlord's sole judgment, the same are necessary and will not cause permanent damage or injury to the Building or the Demised Premises or cause or create a dangerous or hazardous condition or entail excessive or unreasonable alterations, repairs or expense or interfere with or disturb other tenants or occupants. Rigid conduit only will be allowed. 15.03 Landlord shall not in any way be liable or responsible to Tenant for any loss or damage or expense which Tenant may sustain or incur if either the quantity or character of electric service is changed or is no longer available or suitable for Tenant's requirements. 15.04 Tenant agrees not to connect any electrical equipment of any type to the Building electric distribution system, beyond that shown on Tenant's approved plans for initial occupancy, other than lamps, typewriters and other small business machines which consume comparable amounts of electricity, without Landlord's prior written consent which consent shall not be unreasonably withheld or delayed. In no event shall Tenant use or install any fixtures, equipment or machines the use of which in conjunction with other fixtures, equipment and machines in the Demised Premises would result in an overload of the electrical circuits servicing the Demised Premises. -28- 15.05 Tenant covenants and agrees that at all times its use of electric current shall never exceed the capacity of the then existing feeders to the Building or the risers or wiring installation. Tenant shall furnish, install and replace, as required, all lighting tubes, lamps, bulbs and ballasts required in the Demised Premises, at Tenant's sole cost and expense. All lighting tubes, lamps, bulbs and ballasts so installed shall become Landlord's property upon the expiration or sooner termination of this Lease. ARTICLE 16 Heat, Ventilation and Air-Conditioning 16.01 Any use of the Demised Premises, or any part thereof, or rearrangement of partitioning in a manner that interferes with normal operation of the heat, ventilation and air-conditioning systems servicing the same, may require Changes in such systems. Such Changes, so occasioned, shall be made by Tenant, at its expense, as Tenant's Changes pursuant to Article 12. 16.02 Landlord shall maintain and operate the heat system servicing the Demised Premises including the radiators presently existing in the Demised Premises and shall, subject to the design specifications of the system and to energy conservation requirements of, and voluntary energy conservation programs sponsored by, governmental authorities, furnish heat ("HV Service") in the Demised Premises. HV Service shall be provided, as may be required for comfortable occupancy of the Demised Premises, during "Regular Hours" (which shall mean between the hours of 8:00 a.m. and 6:00 p.m.) of "Business Days" (which shall mean all days except Sundays, those days that are observed by the state or federal government as legal holidays and those days designated as holidays by the applicable building service union employees' contract) throughout the year. If Tenant shall require HV Service during hours other than Regular Hours or on days other than Business Days ("After Hours Service"), Landlord shall furnish such After Hours Service to the Demised Premises upon reasonable advance notice from Tenant, and Tenant shall pay, on demand, Landlord's cost therefor plus five (5%) percent. In the event additional tenant(s) of the Building request After Hours Service during the same periods of time for which Tenant has requested such service, Landlord shall allocate the foregoing charges for After Hours Service among Tenant and such additional tenant(s). 16.03 Tenant shall, to the extent same exist or if Tenant installs same pursuant to this Section 16.03, maintain and operate, at its sole cost, any air-conditioning unit(s) (the "Units") located in the Demised Premises. Landlord shall, at its sole cost and expense, provide chilled water to the Units. All electricity used in connection with the Units shall be arranged for by Tenant in accordance with and upon, and subject to, all of the terms, covenants and conditions contained in Article 15 hereof. Tenant shall perform, at its sole cost and expense, any and all necessary repairs thereto and replacements thereof. All of the Units (and any replacements -29- thereof) installed by Landlord pursuant to Exhibit B hereof or otherwise pursuant to the terms of this Lease shall, upon the expiration or sooner termination of this Lease, be surrendered to Landlord in good working order and condition. Any Units (or replacements thereof) not required to be surrendered to Landlord may, at Tenant's sole cost and expense, be removed from the Demised Premises at the expiration or sooner termination of this Lease provided Tenant repairs any damage caused by such removal. Landlord shall (i) deliver the Units presently located in the Demised Premises to Tenant in good working order and (ii) assign to Tenant at the commencement of the term of this Lease any warranties with respect to the Units which Landlord has obtained. ARTICLE 17 Other Services 17.01 Landlord, at its expense, shall provide public elevator service, passenger and freight, by elevators serving the floors on which the Demised Premises are situated during Regular Hours on Business Days, and shall have at least one passenger elevator subject to call at all other times. Notwithstanding anything to the contrary in this Article 12, Landlord agrees that, subject to the rights of other tenants, there shall be no charge to Tenant for the use of the freight elevators servicing the Demised Premises during Regular Hours of Business Days during the Term. 17.02 Tenant shall, at Tenant's sole cost and expense, keep the Demised Premises clean and in order, to the reasonable satisfaction of Landlord and, for that purpose, may (i) hire a cleaning contractor approved in writing by Landlord, such approval not to be unreasonably withheld or (ii) engage its own employees, provided such employees shall enter and exit the Demised Premises through the 401 Building. Tenant shall remove Tenant's refuse and rubbish from the Demised Premises in closed plastic bags or other closed disposal receptacles reasonably satisfactory to Landlord and shall deliver such containerized refuse and rubbish to a location on the floors upon which the Demised Premises are situated designated by Landlord. Such delivery shall be accomplished during such hours of the day and in accordance with such rules and regulations as, in the reasonable judgment of Landlord, are necessary for the proper operation of the Building. Landlord shall, at its sole cost and expense, arrange with a carting company for the removal of such containerized refuse and rubbish from the aforesaid locations. 17.03 Landlord, at its expense, shall furnish adequate hot and cold water to the Demised Premises for drinking, lavatory and cleaning purposes to the extent piping and fixtures at present exist therein. If Tenant uses water for any other purpose, Landlord, at Tenant's expense, shall install meters to measure Tenant's consumption of cold water and/or hot water and/or steam for such other purposes, as the case may be. Tenant shall pay for the quantities of -30- cold water and hot water shown on such meters, at Landlord's cost therefor, on the rendition of Landlord's bills therefor. 17.04 Landlord reserves the right, without any liability to Tenant (except as otherwise expressly provided in this Lease), to stop operating any of the heating, ventilation, air-conditioning, electric, sanitary, elevator or other Building Systems serving the Demised Premises, and to stop the rendition of any of the other services required of Landlord under this Lease, whenever and for so long as may be necessary by reason of accidents, emergencies, strikes, or the making of repairs or Changes that Landlord is required by this Lease or by law to make or in good faith deems necessary, by reason of difficulty in securing proper supplies of fuel, steam, water, electricity, labor, or supplies, or by reason of any other cause beyond Landlord's reasonable control. ARTICLE 18 Access; Changes in Building Facilities; Name 18.01 Excepting the inside surfaces of all walls, windows and doors bounding the Demised Premises (including exterior Building walls, core corridor walls and doors and any core corridor entrances) all areas in the Building including, without limitation, any space in or adjacent to the Demised Premises used for shafts, stacks, pipes, conduits, fan rooms, ducts, electric or other utilities, sinks, or other Building facilities, and the use thereof, as well as access thereto through the Demised Premises for the purpose of operation, maintenance, decoration and repair, are reserved to Landlord. 18.02 Tenant shall permit Landlord access to the Demised Premises (subject to the provisions of Section 18.03) to install, use, replace and maintain pipes, ducts and conduits within the demising walls, load-bearing columns and ceilings of the Demised Premises. 18.03 Landlord or Landlord's agent shall have the right, upon reasonable advance notice (except in the case of an emergency where no such notice shall be required), to enter and/or pass through the Demised Premises or any part thereof, at reasonable times during reasonable hours except in an emergency when it can be at any time (a) to examine the Demised Premises and to show them to Superior Lessors, Superior Mortgagees, or prospective purchasers, mortgagees, or lessees of the Building as an entirety and (b) for the purpose of making such repairs or Changes in or to the Demised Premises, or in or to its facilities as may be provided for by this Lease, as may be mutually agreed upon by the parties, or as Landlord may be required to make by law or in order to repair and maintain the Building or its fixtures or facilities. Landlord shall be allowed to take all materials into and upon the Demised Premises that may be required for such repairs, Changes, or maintenance, without liability to Tenant, but Landlord shall use reasonable efforts not to unreasonably interfere with Tenant's business operations. No damages, -31- compensation or claim shall be payable by Landlord for inconvenience, loss of business or annoyance arising from any repair or restoration of any portion of the Demised Premises or of the Building pursuant to this Section 18.03 18.04 Subject to the provisions of Section 18.03, during the period of nine (9) months prior to the Expiration Date, Landlord may exhibit the Demised Premises to prospective tenants. 18.05 Landlord reserves the right, at any time and without incurring any liability to Tenant therefor, to redesign or to make such Changes in or to the Building and the fixtures and equipment thereof, as well as in or to the street entrances, halls, passages, elevators, escalators and stairways thereof, as it may deem necessary or desirable, provided that Tenant shall at all times have access to the Demised Premises. 18.06 Landlord may adopt any name for the Building. Landlord reserves the right to change the name or address of the Building at any time. 18.07 For the purposes of this Article 18, the term Landlord shall include Superior Lessors and Superior Mortgagees. ARTICLE 19 Notice of Accidents Tenant shall give notice to Landlord, promptly after Tenant learns thereof, of: (a) any accident in or about the Demised Premises for which Landlord might be liable; (b) all fires in the Demised Premises; (c) all damage to, or defects in, the Demised Premises, including the fixtures, equipment and appurtenances thereof, for the repair of which Landlord might be responsible; and (d) all damage to, or defects in, any parts or appurtenances of the Building Systems located in or passing through the Demised Premises or any part thereof. ARTICLE 20 Non-Liability and Indemnification 20.01 Neither Landlord nor any of the partners comprising Landlord and its and their partners, shareholders, officers, directors, employees, agents and contractors, lessors and mortgagees (collectively, "Indemnitees") shall be liable to Tenant for any injury or damage to Tenant or to any other person, or for any damage to, or loss (by theft or otherwise) of, any -32- property of Tenant or of any other person, regardless of the cause of such injury, damage, or loss, unless caused by or due to the negligence of Landlord, its agents or employees, occurring within the scope of their respective employments. It is expressly understood that no property, other than such as might normally be brought upon or kept in the Demised Premises as an incident to the reasonable use of the Demised Premises for the purpose herein permitted, will be brought upon or be kept in the Demised Premises. 20.02 Tenant shall indemnify and save Indemnitees harmless from and against (a) any and all claims arising from (i) the conduct or management of the Demised Premises or of any business therein, (ii) any work or thing whatsoever done or any condition created (other than by Landlord for Landlord's or Tenant's account) in or about the Demised Premises during the term of this Lease or during any period of time prior to the Commencement Date during which Tenant may have been given access to the Demised Premises or (iii) any negligent or otherwise wrongful act or omission of Tenant, of any of its subtenants or licensees, or of its or their employees, agents, or contractors, and (b) all costs, expenses and liabilities (including reasonable attorneys' fees and disbursements) incurred in, or in connection with, each such claim, action or proceeding brought thereon. In case any action or proceeding is brought against Landlord by reason of any such claim, Tenant, upon notice from Landlord, shall resist and defend such action or proceeding by counsel selected by Landlord. 20.03 Except as otherwise expressly provided in this Lease, this Lease and the obligations of Tenant hereunder shall be in no way affected, impaired, or excused because Landlord is unable to fulfill, or is delayed in fulfilling, any of its obligations under this Lease by reason of strike or other labor trouble, governmental pre-emption, priorities, or other controls in connection with a national or other public emergency, shortages of fuel, supplies, or labor resulting therefrom, act of God, or other like cause beyond Landlord's reasonable control. ARTICLE 21 Destruction or Damage 21.01 If the Building or the Demised Premises shall be partially or totally damaged or destroyed by fire or other cause, then, whether or not the damage or destruction shall have resulted from the fault or neglect of Tenant or its employees, agents or visitors (and if this Lease shall not have been terminated as in this Article hereinafter provided), Landlord shall repair the damage and restore and rebuild the Building and/or the Demised Premises, at its expense, with reasonable dispatch after notice to it of the damage or destruction; provided, however, that Landlord shall not be required to repair or replace any of Tenant's Property or to restore any of Tenant's Work. -33- 21.02 If the Building or the Demised Premises shall be partially damaged or partially destroyed by fire or other cause, the rents payable hereunder shall be abated to the extent that the Demised Premises shall have been rendered untenantable (as a result of damage to the Demised Premises or to the Building) and for the period from the date of such damage or destruction to the date the damage shall be repaired or restored by Landlord. If the Demised Premises or a major part thereof shall be totally (which shall be deemed to include substantially totally) damaged or destroyed or rendered completely (which shall be deemed to include substantially completely) untenantable on account of fire or other cause, the rents shall abate as of the date of the damage or destruction and until Landlord shall repair, restore and rebuild the Building and the Demised Premises, provided, however, that, should Tenant reoccupy a portion of the Demised Premises for the conduct of its business during the period in which the restoration work is taking place and prior to the date that the same are made completely tenantable, rents allocable to such portion shall be payable by Tenant from the date of such occupancy. 21.03 If the Building or the Demised Premises shall be totally damaged or destroyed by fire or other cause, or if the Building shall be so damaged or destroyed by fire or other cause (whether or not the Demised Premises are damaged or destroyed) as to require a reasonably estimated expenditure of more than forty percent (40%) of the full insurable value of the Building immediately prior to the casualty, then, in either such event, Landlord may terminate this Lease by giving Tenant notice to such effect within ninety (90) days after the date of the casualty. In case of any damage or destruction mentioned in this Article, Tenant may terminate this Lease by notice to Landlord if such damage or destruction has occurred during the last year of the term of this Lease or if Landlord has not completed the making of the required repairs and restored and rebuilt the Building and the Demised Premises within two hundred ten (210) days from the date of such damage or destruction, or within such period after such date (not exceeding one hundred twenty (120) days as shall equal the aggregate period during which Landlord may have been delayed in doing so by reason of adjustment of insurance, labor trouble, governmental controls, act of God, or any other cause beyond Landlord's reasonable control. 21.04 No damages, compensation, or claim shall be payable by Landlord for inconvenience, loss of business, or annoyance arising from any repair or restoration of any portion of the Demised Premises or of the Building pursuant to this Article 21. Landlord shall use reasonable efforts to effect such repair or restoration promptly and in such a manner as to not unreasonably interfere with Tenant's use and occupancy. 21.05 Notwithstanding any of the foregoing provisions of this Article 21, if Landlord or any Superior Lessor or Superior Mortgagee shall be unable to collect all of the insurance proceeds applicable to damage or destruction of the Demised Premises or the Building by fire or other cause, by reason of some action or inaction on the part of Tenant or any of its employees, agents, or contractors, then, without prejudice to any other remedies that may be available against Tenant, there shall be no abatement of Tenant's rents, but the total amount of -34- such rents not abated (which would otherwise have been abated) shall not exceed the amount of the uncollected insurance proceeds. 21.06 Landlord will not carry insurance of any kind on Tenant's Property or Tenant's Work, and, except as provided by law or by reason of its fault or its breach of any of its obligations hereunder, shall not be obligated to repair any damage thereto or to replace the same. 21.07 The provisions of this Article 21 shall be considered an express agreement of the parties governing in the event of any damage to, or destruction of, the Demised Premises by fire or other casualty, and Section 227 of the Real Property Law of the State of New York, providing for such a contingency in the absence of an express agreement, and any other law of like import, now or hereafter in force, shall have no application thereto. ARTICLE 22 Eminent Domain 22.01 If the whole of the Building shall be lawfully acquired or condemned by eminent domain or in any other manner for any public or quasi-public use or purpose, this Lease and the term and estate hereby granted shall forthwith terminate as of the date of vesting of title in such taking (the "Date of Taking"), and the rents shall be prorated and adjusted as of such date. 22.02 If only a part of the Building shall be so taken, this Lease shall be unaffected by such taking, except that Tenant may elect to terminate this Lease in the event of a partial taking if the remaining area of the Demised Premises shall not be reasonably sufficient for Tenant to continue feasible operation of its business. Tenant shall give notice of such election to Landlord not later than thirty (30) days after (a) notice of such taking is given by Landlord to Tenant or (b) the Date of Taking, whichever occurs sooner. Upon the giving of such notice by Tenant, this Lease shall terminate on the Date of Taking, and the rents shall be prorated as of such termination date. In the event, however, that this Lease shall continue in force after such partial taking as to any portion of the Demised Premises, then the rents then payable hereunder shall be apportioned between the portions of the Demised Premises taken and remaining, on the basis of the rentable areas of the same. The portion of such rents attributable to the portion taken shall be prorated and adjusted as of the Date of Taking, and the portion of such rents attributable to the portion remaining, as the same may thereafter be increased or decreased pursuant to the terms of this Lease, shall continue to be paid by Tenant to Landlord as provided in Article 1. 22.03 Landlord shall be entitled to receive the entire award in any proceeding with respect to any taking provided for in this Article 22 without deduction therefrom for any estate vested in Tenant by this Lease, and Tenant shall receive no part of such award, except as -35- hereinafter expressly provided in this Article 22. Tenant hereby expressly assigns to Landlord all of its right, title and interest in or to every such award. Notwithstanding anything herein to the contrary, Tenant may, at its sole cost and expense, make a claim with the condemning authority for Tenant's moving expenses and for the value of Tenant's Property or Tenant's Changes that do not become part of the Building or the property of Landlord, provided, however, that Landlord's award is not thereby reduced or otherwise adversely affected. 22.04 If the temporary use or occupancy of all or any part of the Demised Premises (each, a "Temporary Taking") shall be lawfully acquired or condemned by eminent domain or in any other manner for any public or quasi-public use or purpose during the term of this Lease, Tenant shall be entitled, except as hereinafter set forth, to receive that portion of the award for such taking that represents compensation for the use and occupancy of the Demised Premises and, if so awarded, for the taking of Tenant's Property and for moving expenses, and Landlord shall be entitled to receive that portion that represents reimbursement for the cost of restoration of the Demised Premises. This Lease shall be and remain unaffected by such taking, and Tenant shall continue to be responsible for all of its obligations hereunder insofar as such obligations are not affected by such taking and shall continue to pay in full the Base Rent and Additional Rent when due. If the period of temporary use or occupancy shall extend beyond the Expiration Date, that part of the award that represents compensation for the use or occupancy of the Demised Premises (or a part thereof) shall be divided between Landlord and Tenant so that Tenant shall receive so much thereof as represents the period prior to the Expiration Date and Landlord shall receive so much thereof as represents the period subsequent to the Expiration Date. All monies received by Tenant as, or as part of, an award for temporary use and occupancy for a period beyond the date to which the rents hereunder have been paid by Tenant shall be received, held and applied by Tenant as a trust fund for payment of the rents falling due hereunder. Notwithstanding anything to the contrary set forth in this Section 22.04, if any Temporary Taking shall continue for a period in excess of 150 days, Tenant may terminate this Lease by delivery of notice to Landlord on or after the date which shall be 150 days after the Date of Taking but in no event later than 210 days after the Date of Taking (the "Temporary Taking Termination Date"). Upon the giving of such notice by Tenant, this Lease shall terminate on the Temporary Taking Termination Date, and the rents shall be prorated as of such date. If Tenant shall fail to timely give such notice, Tenant's right to terminate this Lease pursuant to this Section 22.04 shall be deemed waived and this Lease shall continue in full force and effect. 22.05 In the event of any taking of less than the whole of the Building that does not result in a termination of this Lease, or in the event of a taking for a temporary use or occupancy of all or any part of the Demised Premises that does not extend beyond the Expiration Date, Landlord shall, at its expense (but only to the extent that any award or awards granted for consequential damage to the portion of the Building that is not taken shall be sufficient for such purpose), proceed with reasonable diligence to repair, alter and restore the remaining parts of the Building and the Demised Premises to substantially a building standard condition (to the extent -36- that the same may be feasible) and so as to constitute a complete and tenantable Building and Demised Premises. 22.06 Should any part of the Demised Premises be taken to effect compliance with any law or requirement of public authority other than in the manner hereinabove provided in this Article 22, then (a) if such compliance is the obligation of Tenant under this Lease, Tenant shall not be entitled to any diminution or abatement of rent or other compensation from Landlord therefor, but (b) if such compliance is the obligation of Landlord under this Lease, the rents hereunder shall be apportioned, and, as so apportioned, prorated, adjusted and remain payable, as provided in Section 22.02. 22.07 Any dispute that may arise between the parties with respect to the meaning or application of any of the provisions of this Article 22 shall be determined by arbitration in the manner provided in Article 32. ARTICLE 23 Surrender (a) On the Expiration Date or upon any re-entry by Landlord upon the Demised Premises in accordance with the provisions of this Lease, Tenant shall quit and surrender the Demised Premises to Landlord broom clean, in good order, condition and repair, including, without limitation, restoring Demised Premises to close the Openings (hereinafter defined), if any, except for ordinary wear and tear and for those repairs which are the obligation of Landlord hereunder, and Tenant shall remove all of Tenant's Property therefrom except as otherwise expressly provided in this Lease and shall restore the Demised Premises wherever such removal results in damage thereto. Tenant's obligation to observe or perform this covenant shall survive the expiration or other termination of this Lease. (b) Through and including the sixth month anniversay of the Fourth Floor Delivery Date, Tenant expressly waives, for itself and for any person claiming through or under Tenant, any rights which Tenant or any such person may have under the provisions of Section 2201 of the New York Civil Practice Law and Rules and of any successor law of like import then in force in connection with any holdover summary proceedings which Landlord may institute to enforce the foregoing provisions of this Article 23. Thereafter throughout the remainder of the Term, Tenant expressly waives, for itself and for any person claiming through or under Tenant, any rights which Tenant or any such person may have under the provisions of Section 2201 of the New York Civil Practice Law and Rules and of any successor law of like import then in force in connection with any holdover summary proceedings which Landlord may institute to enforce the foregoing provisions of this Article 23, arising out of an Event of Default under Section 24.02(a). Tenant acknowledges that possession of the Demised Premises must be surrendered to Landlord on the -37- Expiration Date. Tenant agrees to indemnify and save Landlord harmless from and against all claims, losses, damages, liabilities, costs and expenses (including, without limitation, attorneys' fees and disbursements) resulting from delay by Tenant in so surrendering the Demised Premises, including, without limitation, any claims made by any succeeding tenant founded on such delay. The parties recognize and agree that the damage to Landlord resulting from any failure by Tenant to timely surrender possession of the Demised Premises as aforesaid will be extremely substantial, will exceed the amount of the monthly installments of the Base Rent and Rental theretofore payable hereunder, and will be impossible to accurately measure. Tenant therefore agrees that if possession of the Demised Premises is not surrendered to Landlord within twenty-four (24) hours after the Expiration Date, in addition to any other rights or remedies Landlord may have hereunder or at law, and without in any manner limiting Landlord's right to demonstrate and collect any damages suffered by Landlord and arising from Tenant's failure to surrender the Demised Premises as provided herein, Tenant shall pay to Landlord on account of use and occupancy of the Demised Premises for each month and for each portion of any month during which Tenant holds over in the Demised Premises after the Expiration Date, a sum equal to the greater of (i) one and one half (1.5) times the aggregate of that portion of the Base Rent, and Rental which was payable under this Lease during the last month of the Term, and (ii) the then fair market rental value for the Demised Premises. Nothing herein contained shall be deemed to permit Tenant to retain possession of the Demised Premises after the Expiration Date or to limit in any manner Landlord's right to regain possession of the Demised Premises through summary proceedings, or otherwise, and no acceptance by Landlord of payments from Tenant after the Expiration Date shall be deemed to be other than on account of the amount to be paid by Tenant in accordance with the provisions of this Article 23. The provisions of this Article 23 shall survive the Expiration Date. ARTICLE 24 Conditions of Limitation 24.01 To the extent permitted by applicable law, this Lease, and the term and estate hereby granted, are subject to the limitation that, whenever Tenant shall be unable to pay its debts generally as they become due, or shall make an assignment of the property of Tenant for the benefit of creditors, or shall consent to, or acquiesce in, the appointment of a liquidator, receiver, trustee, or other custodian of itself or the whole or any part of its properties or assets, or shall commence a voluntary case for relief under the United States Code or file a petition or take advantage of any bankruptcy or insolvency act or applicable law of like import, or whenever an involuntary case under the United States Bankruptcy Code shall be commenced against Tenant, or if a petition shall be filed against it seeking similar relief under any bankruptcy or insolvency or other applicable law of like import, or whenever a receiver, liquidator, trustee, or other custodian of Tenant, or of, or for, substantially all of the property of Tenant, shall be appointed without Tenant's consent or acquiescence, then, Landlord (a) at any time after receipt of notice -38- of the occurrence of any such event, or (b) if such event occurs without the acquiescence of Tenant, at any time after the event continues for sixty (60) days, may give Tenant a notice of intention to end the term of this Lease at the expiration of five (5) days from the date of service of such notice of intention, and, upon the expiration of said five (5) day period, this Lease and the term and estate hereby granted shall terminate with the same effect as if that day were the Expiration Date, but Tenant shall remain liable for damages as pro-vided in Article 25. As used in this Section 24.01 the term "Tenant" shall mean the then owner and holder of the interest and estate of the tenant under this Lease. 24.02 This Lease, and the term and estate hereby granted, are subject to the further limitation that: (a) whenever Tenant shall default in the payment of any item of Rental on any day upon which the same ought to be paid, and such default shall continue for ten (10) Business Days after Landlord shall have given Tenant a notice specifying such default; (b) whenever Tenant shall do or permit anything to be done, whether by action or inaction, contrary to any of Tenant's obligations hereunder, and if such situation shall continue and shall not, subject to delays beyond Tenant's reasonable control, be remedied by Tenant within thirty (30) days after Landlord shall have given to Tenant a notice specifying the same, or, in the case of a happening or default that cannot, with due diligence, be cured within a period of thirty (30) days and the continuance of which for the period required for cure will not subject Landlord to the risk of criminal liability (as more particularly described in Section 9.02) or termination of any Superior Lease or foreclosure of any Superior Mortgage, if Tenant shall not (i) advise Landlord, within the said thirty (30) day period of Tenant's intention to duly institute all steps necessary to remedy such situation, (ii) duly institute, within the said thirty (30) day period, and, thereafter, diligently prosecute to completion, all steps necessary to remedy the same and (iii) complete such remedy within such time after the date of the giving of said notice by Landlord as shall reasonably be necessary; (c) whenever any event shall occur, or any contingency shall arise, whereby this Lease, the estate hereby granted, or the unexpired balance of the term hereof would, by operation of law or otherwise, devolve upon or pass to any person other than Tenant, except as expressly permitted by Article 8; (d) whenever Tenant shall abandon the Demised Premises; or (e) whenever Tenant shall default in the performance or observance of any of the terms, covenants, or conditions on its part to be observed or performed pursuant to the terms of (i) any other lease of space in the Building, whether now in existence or hereafter entered into, or (ii) after construction of any Opening, the 401 Lease, and shall fail, after the giving of any -39- notice provided for therein, to cure the same within any applicable grace period provided for therein, then, in any of said cases set forth in the foregoing subsections (a), (b), (c), (d) and (e), Landlord may give to Tenant a notice of intention to end the term of this Lease at the expiration of five (5) days from the date of the service of such notice of intention, and, upon the expiration of said five (5) days, this Lease and the term and estate hereby granted, whether or not the term shall theretofore have commenced, shall terminate with the same effect as if that day were the Expiration Date, but Tenant shall remain liable for damages as provided in Article 25. Each of the conditions of limitation described in Section 24.01 and in this Section 24.02 shall be an "Event of Default." ARTICLE 25 Remedies and Damages 25.01 (a) If there shall occur any Event of Default, and this Lease and the term thereof shall expire and come to an end as provided in Article 24 hereof: (1) Tenant shall quit and peacefully surrender the Demised Premises to Landlord, and Landlord and its agents may immediately, or at any time after such default or after the date upon which this Lease and the term thereof shall expire and come to an end, re-enter the Demised Premises or any part thereof, without notice, either by summary proceedings, or by any other applicable action or proceeding, or by force or otherwise (without being liable to indictment, prosecution or damages therefor), and may repossess the Demised Premises and dispossess Tenant and any other persons from the Demised Premises and remove any and all of their property and effects from the Demised Premises; and (2) Landlord, at Landlord's option, may relet the whole or any portion or portions of the Demised Premises from time to time, either in the name of Landlord or otherwise, to such tenant or tenants, for such term or terms ending before, on or after the Expiration Date, at such rental or rentals and upon such other conditions, which may include concessions and free rent periods, as Landlord, in its sole discretion, may determine; provided, however, that Landlord shall have no obligation to relet the Demised Premises or any part thereof and shall in no event be liable for refusal or failure to relet the Demised Premises or any part thereof, or, in the event of any such reletting, for refusal or failure to collect any rent due upon any such reletting, and no such refusal or failure shall operate to relieve Tenant of any liability under this Lease or otherwise affect any such liability, and Landlord, at Landlord's option, may make such repairs, replacements, alterations, additions, improvements, decorations and other physical changes in and to the Demised Premises as Landlord, in its sole discretion, considers advisable or necessary in connection with any such reletting or proposed reletting, without relieving Tenant of any liability under this Lease or otherwise affecting any such liability. -40- (b) Tenant hereby waives the service of any notice of intention to re-enter or to institute legal proceedings to that end which may otherwise be required to be given under any present or future law. Tenant, on its own behalf and on behalf of all persons claiming through or under Tenant, including all creditors, does further hereby waive any and all rights which Tenant and all such persons might otherwise have under any present or future law to redeem the Demised Premises, or to re-enter or repossess the Demised Premises, or to restore the operation of this Lease, after (i) Tenant shall have been dispossessed by a judgment or by warrant of any court or judge, or (ii) any re-entry by Landlord, or (iii) any expiration or termination of this Lease and the term thereof, whether such dispossess, re-entry, expiration or termination shall be by operation of law or pursuant to the provisions of this Lease. The words "re-enter," "re-entry" and "re-entered" as used in this Lease shall not be deemed to be restricted to their technical legal meanings and the right to invoke any other remedy allowed by law or in equity as if re-entry, summary proceedings and other special remedies were not provided in this Lease for such breach. The right to invoke the remedies hereinbefore set forth are cumulative and shall not preclude Landlord from invoking any other remedy allowed at law or in equity. 25.02 (a) If this Lease and the term thereof shall expire and come to an end as provided in Article 24 hereof, or by or under any summary proceeding or any other action or proceeding, or if Landlord shall re-enter the Demised Premises as provided in Section 25.01, or by or under any summary proceeding or any other action or proceeding, then, in any of said events: (1) Tenant shall pay to Landlord all Rental to the date upon which this Lease and the term thereof shall have expired and come to an end or to the date of re-entry upon the Demised Premises by Landlord, as the case may be; (2) Tenant also shall be liable for and shall pay to Landlord, as damages, any deficiency ("Deficiency") between the Rental for the period which otherwise would have constituted the unexpired portion of the term of this Lease and the net amount, if any, of rents collected under any reletting effected pursuant to the provisions of clause (2) of Section 25.01(a) for any part of such period (first deducting from the rents collected under any such reletting all of Landlord's expenses in connection with the termination of this Lease, Landlord's re-entry upon the Demised Premises and with such reletting, including, but not limited to, all repossession costs, brokerage commissions, legal expenses, attorneys' fees and disbursements, alteration costs, contribution to work and other expenses of preparing the Demised Premises for such reletting); any such Deficiency shall be paid in monthly installments by Tenant on the days specified in this Lease for payment of installments of Base Rent; Landlord shall be entitled to recover from Tenant each monthly Deficiency as the same shall arise, and no suit to collect the amount of the Deficiency for any month shall prejudice Landlord's right to collect the Deficiency for any subsequent month by a similar proceeding; and -41- (3) whether or not Landlord shall have collected any monthly Deficiency as aforesaid, Landlord shall be entitled to recover from Tenant, and Tenant shall pay to Landlord, on demand, in lieu of any further Deficiency as and for liquidated and agreed final damages, a sum equal to the amount by which the Rental for the period which otherwise would have constituted the unexpired portion of the term of this Lease (commencing on the date immediately succeeding the last date with respect to which a Deficiency, if any, was collected) exceeds the then fair and reasonable rental value of the Demised Premises for the same period, both discounted to present worth at the rate of interest publicly announced from time to time by The Chase Manhattan Bank, N.A., or its successor, as its "prime lending rate" (or such other term as may be used by The Chase Manhattan Bank, N.A., from time to time, for the rate presently referred to as its "prime lending rate"). (b) If the Demised Premises, or any part thereof, shall be relet together with other space in the Building, the rents collected or reserved under any such reletting and the expenses of any such reletting shall be equitably apportioned for the purposes of this Section 25.02. Tenant shall in no event be entitled to any rents collected or payable under any reletting, whether or not such rents shall exceed the Base Rent reserved in this Lease. Nothing contained in Article 24 hereof or this Article 25 shall be deemed to limit or preclude the recovery by Landlord from Tenant of the maximum amount allowed to be obtained as damages by any statute or rule of law, or of any sums or damages to which Landlord may be entitled in addition to the damages set forth in this Section 25.02. ARTICLE 26 Waivers 26.01 Tenant, for Tenant, and on behalf of any and all persons claiming through or under Tenant, including creditors of all kinds, does hereby waive and surrender all right and privilege, that they, or any of them, might have under, or by reason of, any present or future law, to redeem the Demised Premises or to have a continuance of this Lease for the term hereby demised after being dispossessed or ejected therefrom by process of law, under the terms of this Lease, or after the termination of this Lease as herein provided. 26.02 In the event that Tenant is in arrears in the payment of Base Rent or Additional Rent hereunder, Tenant waives Tenant's right, if any, to designate the item(s) against which any payments made by Tenant are to be credited, and Tenant hereby agrees that Landlord may apply any payments made by Tenant to any item(s) Landlord sees fit, regardless of, and notwithstanding any, designation or request by Tenant as to the terms against which any such payments shall be credited. -42- 26.03 Landlord and Tenant each hereby waive trial by jury in any action, proceeding, or counterclaim brought by either against the other on any matter whatsoever arising out of, or in any way connected with, this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Demised Premises, including any claim of injury or damage, or any emergency or other statutory remedy with respect thereto. If Landlord commences any summary proceeding against Tenant, Tenant will not interpose any counterclaim of whatever nature or description in any such proceeding (unless failure to impose such counterclaim would preclude Tenant from asserting in a separate action the claim which is the subject of such counterclaim), and will not seek to consolidate such proceeding with any other action which may have been or will be brought in any other court by Tenant. 26.04 The provisions of Articles 16 and 17 shall be considered express agreements governing the services to be furnished by Landlord, and Tenant agrees that any laws and/or requirements of public authorities, now or hereafter in force, shall have no application in connection with any enlargement of Landlord's obligations with respect to such services unless Tenant agrees, in writing, to pay to Landlord, as Additional Rent, Landlord's reasonable charges for any additional services provided. ARTICLE 27 No Other Waivers or Modifications 27.01 The failure of either party to insist, in any one or more instances, upon the strict performance of any one or more of the obligations of this Lease, or to exercise any election herein contained, shall not be construed as a waiver or relinquishment of the future performance of such one or more obligations of this Lease, or of the right to exercise such election, but the same shall continue and remain in full force and effect with respect to any subsequent breach, act, or omission. No executory agreement hereafter made between Landlord and Tenant shall be effective to change, modify, waive, release, discharge, terminate, or effect an abandonment of this Lease, in whole or in part, unless such executory agreement is in writing, refers expressly to this Lease and is signed by the party against whom enforcement of the change, modification, waiver, release, discharge, termination, or effectuation of the abandonment is sought. 27.02 The following specific provisions of this Section 27.02 shall not be deemed to limit the generality of any of the provisions of Section 27.01: (a) no act or thing done by Landlord or Landlord's agents during the term of this Lease shall be deemed an acceptance of a surrender of the Demised Premises, and no agreement to accept a surrender of all or any part of the Demised Premises shall be valid, unless in writing and signed by Landlord. The delivery of keys to an employee of Landlord or of its agent shall not operate as a termination of this Lease or a surrender of the Demised Premises. If -43- Tenant shall, at any time, request Landlord to sublet the Demised Premises for Tenant's account, Landlord or its agent is authorized to receive said keys for such purpose without releasing Tenant from any of its obligations under this Lease, and Tenant hereby releases Landlord from any liability for loss or damage to any of Tenant's property in connection with such subletting; (b) the receipt by Landlord of rent with knowledge of breach of any obligation of this Lease shall not be deemed a waiver of such breach; and (c) no payment by Tenant, or receipt by Landlord, of a lesser amount than the correct Base Rent or Additional Rent due hereunder shall be deemed to be other than a payment on account, nor shall any endorsement or statement on any check or any letter accompanying any check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance or pursue any other remedy in this Lease or at law provided. ARTICLE 28 Curing Tenant's Defaults; Additional Rent; Reimbursement of Costs 28.01 If Tenant shall default in the performance of any of Tenant's obligations under this Lease, Landlord, without thereby waiving such default, may (but shall not be obligated to) perform the same for the account and at the expense of Tenant, without notice, in a case of emergency, and in any other case, only if such default continues after the expiration of (a) five (5) Business Days from the date upon which Landlord gives Tenant notice of intention to do so or (b) the applicable grace period provided in Section 24.02 or elsewhere in this Lease for cure of such default, whichever occurs later. 28.02 If Tenant is late in making any payment due to Landlord under this Lease for ten (10) or more days, then interest shall become due and owing to Landlord on such payment from the date upon which it was due, which interest shall be computed at the following rates: (a) for an individual or partnership tenant, computed at the maximum lawful rate of interest; (b) for a corporate tenant, computed at the greater of (i) one and 25/100 percent (1.25%) per month or (ii) two percent (2%) per annum over the then prime rate of The Chase Manhattan Bank, N.A., but in no event in excess of the maximum lawful rate of interest chargeable to corporations in the State of New York. -44- 28.03 Bills for any expenses incurred by Landlord in connection with any performance by it for the account of Tenant, and bills for all costs, expenses and disbursements of every kind and nature whatsoever, including reasonable counsel fees, involved in collecting successfully the Base Rent or Additional Rent or any part thereof or enforcing any rights against Tenant, under or in connection with this Lease, or pursuant to law, including any such cost, expense and disbursement involved in instituting and prosecuting summary proceedings, as well as bills for any property, material, labor, or services provided, furnished, or rendered, by Landlord or at its instance to Tenant, together with a reasonably detailed description of such expenses, may be sent by Landlord to Tenant monthly, or immediately, at Landlord's option, and shall be due and payable in accordance with the terms of such bills promptly upon receipt by Tenant. ARTICLE 29 Broker Tenant covenants, warrants and represents to Landlord that Tenant has not dealt with any broker or finder with respect to this Lease, and that no conversations or negotiations were had by Tenant with any broker or finder concerning the renting of the Demised Premises to Tenant. Tenant hereby agrees to indemnify and hold Landlord harmless from any and all losses, costs, damages or defenses (including, without limitation, attorneys' fees and disbursements) incurred by Landlord by reason of any claim of or liability to any broker or finder who claims to have dealt with Tenant in connection with this Lease. ARTICLE 30 Notices Any notice, statement, demand, or other communication required or permitted to be given, rendered, or made by either party to the other, pursuant to this Lease or pursuant to any applicable law or requirement of public authority, shall be in writing (whether or not so stated elsewhere in this Lease) and shall be deemed to have been properly given, rendered, or made if sent by registered or certified mail, return receipt requested, addressed to the other party at the address set forth below, and shall be deemed to have been given, rendered, or made on the day so mailed. Either party may, by notice as aforesaid, designate a different address or addresses for notices, statements, demands, or other communications intended for it. If to Landlord: 387 P.A.S. Enterprises -45- 387 Park Avenue South New York, New York 10022 Attention: John Fletcher, III with a copy to: Latham & Watkins 885 Third Avenue New York, New York 10022 Attention: Richard L. Chadakoff, Esq. If to Tenant: Health Management Systems, Inc. 401 Park Avenue South New York, New York 10022 Attention: Vincent C. Hartley, II with a copy to: Coleman & Rhine 1120 Avenue of the Americas, 19th floor New York, N.Y. 10036 Attention: Bruce Coleman, Esq. ARTICLE 31 Estoppel Certificate; Memorandum 31.01 Each party agrees, at any time and from time to time without cost or charge, as requested by the other party, upon not less than ten (10) days' prior notice, to execute and deliver to the other a statement (a) certifying that this Lease is unmodified and in full force and effect (or, if there have been modifications, that the same is in full force and effect as modified and stating the modifications) and whether any options granted to Tenant pursuant to the provisions of this Lease have been exercised; (b) certifying the dates to which the Base Rent and Additional Rent have been paid and the amounts thereof; (c) stating whether or not, to the best knowledge of the signer, the other party is in default in performance of any of its obligations under this Lease, and, if so, specifying each such default of which the signer may have knowledge; and (d) setting forth any additional information which the other party may reasonably request. -46- 31.02 It is agreed by the parties that the certificate referenced in Section 31.01 may be relied upon by anyone with whom the party requesting such certificate may be dealing. 31.03 At the request of Landlord, Tenant shall promptly execute, acknowledge and deliver to Landlord a memorandum with respect to this Lease sufficient for recording. Such memorandum shall not in any circumstances be deemed to change or otherwise affect any of the obligations or provisions of this Lease. ARTICLE 32 Arbitration 32.01 Either party may request arbitration of any matter in dispute with respect to which arbitration is expressly provided in this Lease as the appropriate remedy. The party requesting arbitration shall do so by giving notice to that effect to the other party, and both parties shall promptly thereafter jointly apply to the American Arbitration Association (or any organization successor thereto) in the City and County of New York for the appointment of a single arbitrator. 32.02 The arbitration shall be conducted in accordance with the then prevailing rules of the American Arbitration Association (or any organization successor thereto) in the City and County of New York and, subject to the terms of the immediately succeeding sentence, judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. In rendering such decision and award, the arbitrator shall not add to, subtract from, or otherwise modify the provisions of this Lease. 32.03 If, for any reason whatsoever, a written decision and award of the arbitrator shall not be rendered within sixty (60) days after the appointment of such arbitrator, then, at any time thereafter before such decision and award shall have been rendered, either party may apply to the Supreme Court of the State of New York or to any other court having jurisdiction and exercising the functions similar to those now exercised by such court, by action, proceeding, or otherwise (but not by a new arbitration proceeding), as may be proper to determine the question in dispute consistent with the provisions of the lease. 32.04 All the expenses of the arbitration relating to the fees of the American Arbitration Association and/or arbitration fees shall be borne by the parties equally; all other expenses shall be borne by the party incurring same., ARTICLE 33 -47- No Other Representations; Construction; Governing Law; Consents 33.01 Tenant expressly acknowledges and agrees that Landlord has not made and is not making, and Tenant, in executing and delivering this Lease, is not relying upon, any warranties, representations, promises, or statements, except to the extent that the same are expressly set forth in this Lease. It is understood and agreed that all understandings and agreements heretofore had between the parties are merged in this Lease, which alone fully and completely expresses their agreements, and that the same is entered into after full investigation, neither party relying upon any statement or representation not embodied in this Lease, made by the other. 33.02 If any of the provisions of this Lease, or the application thereof to any person or circumstances, shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such provision or provisions to persons or circumstances other than those as to whom or which it is held invalid or unenforceable, shall not be affected thereby, and every provision of this Lease shall be valid and enforceable to the fullest extent permitted by law. 33.03 This Lease shall be governed in all respects by the laws of the State of New York. 33.04 If Tenant shall request Landlord's consent or approval pursuant to any of the provisions of this Lease or otherwise, and Landlord shall fail or refuse to give, or shall delay beyond a reasonable period of time in giving, such consent or approval, Tenant shall in no event make, or be entitled to make, any claim for damages (nor shall Tenant assert, or be entitled to assert, any such claim, by way of defense, set-off, or counterclaim) based upon any claim or assertion by Tenant that Landlord unreasonably withheld or delayed its consent or approval, and Tenant hereby waives any and all rights that it may have, from whatever source derived, to make or assert any such claim. Tenant's sole remedy for any such failure, refusal, or delay shall be an action for a declaratory judgment, specific performance, or injunction, and such remedies shall be available only in those instances where Landlord has expressly agreed in writing not to unreasonably withhold or delay its consent or approval or where, as a matter of law, Landlord may not unreasonably withhold or delay the same. ARTICLE 34 Parties Bound 34.01 The obligations of this Lease shall bind and benefit the successors and assigns of the parties, with the same effect as if mentioned in each instance where a party is named or referred to, except that (a) no violation of the provisions of Article 8 shall operate to vest any -48- rights in any successor or assignee of Tenant and (b) the provisions of this Article 34 shall not be construed as modifying the conditions of limitation contained in Article 24. However, the obligations of Landlord under this Lease shall not be binding upon Landlord herein named with respect to any period subsequent to the transfer of its interest in the Building as owner or lessee thereof, and, in event of such transfer, said obligations shall thereafter be binding upon each transferee of the interest of Landlord herein named as such owner or lessee of the Building, but only with respect to the period ending with a subsequent transfer within the meaning of this Article 34. 34.02 Tenant shall look only to Landlord's equity in the estate and property in the Building (or the proceeds thereof) and, where expressly so provided in this Lease, to offset against the rents payable under this Lease, for the satisfaction of Tenant's remedies for the collection of a judgment (or other judicial process) requiring the payment of money by Landlord in the event of any default by Landlord hereunder, and no other property or assets of Landlord or any partner, member, officer, or director thereof, disclosed or undisclosed, shall be subject to levy, execution, or other enforcement procedure for the satisfaction of Tenant's remedies under or with respect to this Lease, the relationship of Landlord and Tenant hereunder, or Tenant's use or occupancy of the Demised Premises. 34.03 If there shall be more than one person named as tenant herein, than all such persons shall be deemed to be joint tenants in the leasehold estate demised hereby, with joint and several liability hereunder. ARTICLE 35 Certain Definitions and Construction 35.01 For the purposes of this Lease and all agreements supplemental to this Lease, the definitions set forth in herein shall be utilized unless the context shall otherwise require. 35.02 Terms contained in quotation marks and defined in other Articles of this Lease, or that are so defined in Exhibits annexed hereto, shall have the meanings specified in such other Articles and such Exhibits for all purposes of this Lease and all agreements supplemental thereto, unless the context shall otherwise require. 35.03 This Lease is offered for signature by Tenant and it is understood that this Lease shall not be binding upon Landlord or Tenant unless and until Landlord and Tenant shall have executed and unconditionally delivered a fully executed copy of this Lease to each other. 35.04 Notwithstanding anything contained in this Lease to the contrary, all amounts payable by Tenant to or on behalf of Landlord under this Lease, whether or not expressly -49- denominated Base Rent or Additional Rent, shall constitute rent for the purposes of Section 502(b)(7) of the Bankruptcy Code. 35.05 Tenant's liability for all items of Rental shall survive the Expiration Date. 35.06 (a) The term "mortgage" shall include an indenture of mortgage and deed of trust to a trustee to secure an issue of bonds, and the term "mortgagee" shall include such a trustee. (b) The terms "include," "including" and "such as" shall each be construed as if followed by the phrase "without being limited to." (c) The term "obligations of this Lease," and words of like import, shall mean the covenants to pay Rental under this Lease and all of the other covenants and conditions contained in this Lease. Any provision in this Lease that one party or the other, or both, shall do, or not do, or shall cause or permit, or not cause or permit, a particular act, condition, or circumstance shall be deemed to mean that such party so covenants or both parties so covenant, as the case may be. (d) The term "Tenant's obligations hereunder," and words of like import, and the term Landlord's obligations hereunder, and words of like import, shall mean the obligations of this Lease that are to be performed or observed by Tenant, or by Landlord, as the case may be. Reference to "performance" of either party's obligations under this Lease shall be construed as "performance and observance." (e) Reference to Tenant being or not being "in default hereunder," or words of like import, shall mean that Tenant is in default in the performance of one or more of Tenant's obligations hereunder, or that Tenant is not in default in the performance of any of Tenant's obligations hereunder, or that a condition of the character described in Section 24.01 has occurred and continues or has not occurred or does not continue, as the case may be. (f) References to Landlord as "having no liability to Tenant" or being "without liability to Tenant," shall mean that Tenant is not entitled to terminate this Lease, or to claim actual or constructive eviction, partial or total, or to receive any abatement or diminution of rent, or to be relieved in any manner of any of its other obligations hereunder, or to be compensated for loss or injury suffered or to enforce any other kind of liability whatsoever against Landlord under or with respect to this Lease or with respect to Tenant's use or occupancy of the Demised Premises except as otherwise expressley provided herein. (g) The term "laws and/or requirements of public authorities" and words of like import shall mean laws and ordinances of any or all of the Federal, state, city, county and borough governments and rules, regulations, orders and/or directives of any or all departments, -50- subdivisions, bureaus, agencies or offices thereof, or of any other governmental, public or quasi-public authorities, having jurisdiction in the premises, and/or the direction of any public officer pursuant to law. (h) The term "requirements of insurance bodies" and words of like import shall mean rules, regulations, orders and other requirements of the New York Board of Fire Underwriters and/or the New York Fire Insurance Rating Organization and/or any other similar body performing the same or similar functions and having jurisdiction or cognizance of the Building and/or the Demised Premises. (i) The term "repair" shall be deemed to include restoration and replacement as may be necessary to achieve and/or maintain good working order and condition. (j) Reference to "termination of this Lease" includes expiration or earlier termination of the term of this Lease or cancellation of this Lease pursuant to any of the provisions of this Lease or by law. Upon a termination of this Lease, the term and estate granted by this Lease shall end at noon of the date of termination as if such date were the Expiration Date and neither party shall have any further obligation or liability to the other after such termination (i) except as shall be expressly provided for in this Lease, or (ii) except for such obligation as by its nature or under the circumstances can only be, or by the provisions of this Lease, may be, performed after such termination, and, in any event, unless expressly otherwise provided in this Lease, any liability for a payment that shall have accrued to or with respect to any period ending at the time of termination shall survive the termination of this Lease. (k) The term in "full force and effect," when herein used in reference to this Lease as a condition to the existence or exercise of a right on the part of Tenant, shall be construed in each instance as including the further condition that, at the time in question, no default on the part of Tenant exists, and no event has occurred that has continued to exist for such period of time (after the notice, if any, required by this Lease), as would entitle Landlord to terminate this Lease or to dispossess Tenant. (l) The term "Tenant" shall mean Tenant herein named or any assignee or other successor in interest (immediate or remote) of Tenant herein named, while such Tenant or such assignee or other successor in interest, as the case may be, is in possession of the Demised Premises as owner of the Tenant's estate and interest granted by this Lease and also, if Tenant is not an individual or a corporation, all of the persons, firms and corporations then comprising Tenant. (m) The term "person," or words of like import, shall mean a natural person, partnership, corporation, trust, estate, fiduciary, unincorporated association, syndicate, joint venture, organization, or any other manner of entity. -51- (n) Words and phrases used in the singular shall be deemed to include the plural and vice versa, and nouns and pronouns used in any particular gender shall be deemed to include any other gender. (o) A general statement following or referable to an enumeration of specific matters shall not be limited to matters similar to the matters specifically mentioned. (p) All references in this Lease to numbered Articles, numbered Sections and lettered Exhibits are references to Articles and Sections of this Lease, and Exhibits annexed to (and thereby made part of) this Lease, as the case may be, unless expressly otherwise designated in the context. (q) Any contradiction between the terms contained in the body of this Lease and the Rules and Regulations attached hereto as Exhibit C shall be resolved in favor of the terms contained in the body of this Lease. ARTICLE 36 Adjacent Excavation; Shoring If an excavation or other substructure work shall be made upon land adjacent to the Demised Premises, or shall be authorized to be made, Tenant shall afford to the person causing or authorized to cause such excavation license to enter upon the Demised Premises for the purpose of doing such work as shall be necessary to preserve the wall of or the Building from injury or damage and to support the same by proper foundations without any claim for damages or indemnity against Landlord, or diminution or abatement of rent. ARTICLE 37 Tenant's Option to Renew 37.01 Tenant shall have an option to extend the term of this Lease for one (1) additional term of five (5) years (the "Renewal Term") commencing on the first day next succeeding the Expiration Date (the "Renewal Term Commencement Date") , and expiring at 12 noon on the day immediately preceding the fifth (5th) anniversary of the Renewal Term Commencement Date, unless terminated at an earlier date pursuant to the terms and conditions of this Lease or by applicable law. Tenant shall notify Landlord of its intention to exercise its option at least one (1) year prior to the Expiration Date, time being of the essence as to Tenant's obligation to so notify Landlord. Upon Tenant's notification to Landlord of its intention to exercise its option, this Lease shall be deemed extended without the requirement of further action -52- by either of the parties hereto and all of the terms and conditions of this Lease (excluding, however, this Article 37) shall govern the tenancy during the Renewal Term including the obligation of Tenant to pay Additional Rent, except that the Base Rent for the Renewal Term shall be equal to the greater of (a) the annual Base Rent payable by Tenant for the twelve (12) months prior to the Expiration Date or (b) the fair market rent of the Demised Premises as of the Expiration Date, determined as hereinafter provided. If Tenant shall not give Landlord the aforesaid notice within the time period indicated, the right to such Renewal Term shall terminate and shall be deemed to have been waived by Tenant. 37.02 Within thirty (30) days after receipt by Landlord of Tenant's notification referred to in Section 37.01 hereof, and if in Landlord's opinion an increase in the Base Rent for the Renewal Term is warranted because the fair market rent for the Demised Premises has increased, Landlord shall send Tenant a notice (the "Revised Rent Notice") stating the amount which, in Landlord's good faith opinion, shall constitute the fair market rent for the Demised Premises as of the Expiration Date. The increased Base Rent set forth in the Revised Rent Notice shall be effective as of the Renewal Term Commencement Date. 37.03 (a) If Landlord gives a Revised Rent Notice, then at any time within thirty (30) days after the giving of such Revised Rent Notice, Tenant may dispute the fair market rent of the Demised Premises as determined by Landlord by giving notice to Landlord that it is initiating the appraisal process provided for herein and specifying in such notice the name and address of the arbitrator designated by Tenant to act on its behalf. If Tenant does not give Landlord the aforesaid notice within the time period above specified, the rent set forth in the Revised Rent Notice shall be binding and conclusive on both parties. Within fifteen (15) days after the designation of Tenant's arbitrator, Landlord shall give notice to Tenant specifying the name and address of Landlord's arbitrator. The two arbitrators so chosen shall meet within ten (10) days after the second arbitrator is appointed and if, within twenty (20) days after the second arbitrator is appointed, the two arbitrators shall not agree upon a determination in accordance with Paragraph (c) of this Section 37.03 they shall together appoint a third arbitrator. If said two arbitrators cannot agree upon the appointment of a third arbitrator within ten (10) days after the expiration of such twenty (20) day period, then either party, on behalf of both, and on notice to the other, may request such appointment by the American Arbitration Association (or any successor organization) in accordance with its then prevailing rules. If the American Arbitration Association shall fail to appoint said third arbitrator within ten (10) days after such request is made, then either party may apply, on notice to the other, to the Supreme Court, New York County, New York (or any other court having jurisdiction and exercising functions similar to those now exercised by the foregoing court) for the appointment of such third arbitrator. (b) Each of the arbitrators selected as herein provided shall have at least five years experience in the leasing or management of office space in the Borough of Manhattan and the third arbitrator shall have no business relationship with either party. Each party shall pay the fees and expenses of the arbitrator selected by it. The fees and expenses of the third arbitrator and -53- all other expenses (not including the attorneys' fees, witness fees and similar expenses of the parties which shall be borne separately by each of the parties) of the arbitration shall be borne equally by the parties hereto. (c) The majority of the arbitrators shall determine the fair market rent of the Demised Premises as of the Expiration Date and render a decision and award as to their determination to both Landlord and Tenant within twenty (20) days after the appointment of the third arbitrator. In rendering such decision and award, the arbitrators shall assume or take into consideration as appropriate the following: (i) Landlord and Tenant are typically motivated; (ii) Landlord and Tenant are well-informed and well-advised and each is acting in what it considers its own best interest; (iii) the rent is unaffected by concessions, special financing amounts and/or terms, or unusual services, fees, costs or credits in connection with the leasing transaction; (iv) the Demised Premises are fit for immediate occupancy and use "as is", and require no additional work by Landlord, and no work has been carried out therein by Tenant, its subtenant, or their predecessors in interest during the term of this Lease which has diminished the rental value of the Demised Premises; (v) in the event the Demised Premises have been destroyed or damaged by fire or other casualty, the same have been fully restored; (vi) the Demised Premises are to be let subject to the provisions of this Lease for a five-year term; and (vii) the rent is to be determined in accordance with market rents then being charged for comparable space in similar office buildings in the same area. In rendering such decision and award, the arbitrators shall not modify the provisions of this Lease. The decision and award of the arbitrators shall be in writing and be final and conclusive on all parties and counterpart copies thereof shall be delivered to each of said parties. Judgment may be had on the decision and award of the arbitrators so rendered in any court of competent jurisdiction. (d) Prior to the determination of the arbitrators, Tenant shall pay as the Base Rent it is obligated to pay under this Lease the amount set forth in the Revised Rent Notice and in the event the arbitrators determine that the Base Rent payable pursuant to this Article 37 is greater than that set forth in the Revised Rent Notice, then Tenant shall promptly pay to Landlord the amount of its underpayment of Base Rent for the period commencing on the Renewal Term Commencement Date; or, if the arbitrators determine that the fixed annual rent payable pursuant to this Article is less than that set forth in the Revised Rent Notice, then Tenant shall be entitled to a credit in the amount of its overpayment for the period commencing on the Renewal Term Commencement Date against subsequent payments of Base Rent due hereunder. 37.04 Notwithstanding the foregoing provisions of this Article 37, if on the date that Tenant exercises its option by notification to Landlord, or if on any subsequent date up to and including the Expiration Date, Tenant is in default in the performance of any of the terms, conditions or provisions of this Lease and such default has continued beyond any applicable grace period, then Tenant's exercise of its option and the extension of the term of this Lease contemplated thereby shall, at the option of Landlord exercised by notice to Tenant, be rendered -54- null and void and shall be of no further force and effect and Tenant shall have no further or additional right to exercise the option set forth in this Article 37. 37.05 From and after the Renewal Term Commencement Date the term "Expiration Date" shall mean the day immediately preceding the fifth (5th) anniversary of the Renewal Term Commencement Date. ARTICLE 38 Connection to the 401 Premises 38.01 (a) Reference is made to that certain lease agreement, dated as of September 24, 1981, as amended by Amendment of Lease, dated October 9, 1981, as further amended by Amendment of Lease, dated September 24, 1982, as further amended by Second Amendment of Lease, dated January 6, 1986 and as further amended by Third Amendment of Lease, dated February 28, 1990 and as same may thereafter be amended (collectively, the "401 Lease"), between Tenant, as tenant, and 401 Park Avenue South Associates as landlord (the "401 Landlord"), pursuant to which Tenant leased a certain part of the fourth (4th) floor of the building commonly known as 401 Park Avenue South, New York, New York (the "401 Building") and located immediately adjacent to the Building. (b) Landlord hereby agrees that, in connection with the performance of Tenant's Work, Tenant may construct an opening connecting the fourth (4th) floor of the Demised Premises to the fourth (4th) floor of the 401 Premises in accordance with the Plans (as finally approved by Landlord), at Tenant's sole cost and expense and under the supervision and direction of consultants and engineers designated and paid for by Tenant and approved by Landlord. Landlord hereby approves: Irwin Associates as engineers; Structural Engineers and Practical Design Associates, Inc. as structural engineer and Robert Levine, P.C. as architect. Furthermore, provided that this Lease shall be in full force and effect at the time Tenant occupies any portion of the third (3rd) floor of the 401 Premises and provided no default shall have occurred and be continuing at such time under this Lease or the 401 Lease, Landlord hereby agrees that Tenant may construct an opening connecting the third (3rd) floor of the Demised Premises to the third (3rd) floor of the 401 Premises (each such opening, an "Opening") in accordance with plans and specifications to be delivered to and approved by Landlord in accordance with the provisions of Article 12 hereof, at Tenant's sole cost and expense and under the supervision and direction of consultants and engineers designated by Landlord and paid for by Tenant, provided: 1) Prior to the Expiration Date, Tenant at its sole cost and expense shall restore the Demised Premises by sealing each Opening and repairing any damage to the Demised Premises caused thereby in a manner satisfactory to Landlord; -55- 2) In addition to the indemnity set forth in Article 20 hereof, Tenant agrees to and hereby does indemnify, defend and hold harmless Landlord and the Indemnitees from and against any and all liabilities, claims, costs and expenses whatsoever (including, without limitation, reasonable attorneys' fees and disbursements) arising out of or otherwise in connection with (i) Tenant's construction, use and subsequent restoration of the Openings and (ii) Tenant's use and occupancy of the Demised Premises and the 401 Premises as contiguous spaces; 3) Landlord's insurance carrier will continue to insure the Building, without increased premium to Landlord, notwithstanding the construction and use of the Opening(s); 4) The holder of any Superior Mortgage and any lessor under a Superior Lease shall have consented to the construction and use of such Opening; 5) Tenant shall deliver to Landlord, no later than the date which is ten (10) Business Days prior to commencement of construction of an Opening, the following documents in form and substance satisfactory to Landlord and its counsel and executed by the parties thereto: (i) a certificate of insurance addressed to Landlord from Tenant's insurance agent stating that all coverage provided by such carrier with respect to the Demised Premises in accordance with Article 10 hereof shall continue in full force and effect notwithstanding the construction and existence of such Opening and the use and occupancy by Tenant of the Demised Premises and the 401 Premises as contiguous spaces; (ii) a letter addressed to Landlord from each of (a) the ground lessor under that certain ground lease, dated September 14, 1979 between the 401 Landlord, as the ground lessee, and such ground lessor, and (b) the holder of each mortgage on the 401 Building, whereby each such holder of a superior interest consents to the construction and use of such Opening and the use and occupancy by Tenant of the 401 Premises connected to the Demised Premises as contemplated in this Article 38; and (iii) to the extent Landlord and/or its counsel deems it necessary or desirable, an agreement among Landlord, Tenant and the 401 Landlord setting forth the respective rights, liabilities and obligations, consistent with this Article 38, of the parties with respect to the construction and use of the Openings, including, without limitation, the obligation of the 401 Landlord to deliver notice of any default by Tenant under the 401 Lease to Landlord concurrently with its delivery of any such notice to Tenant. -56- 6) Upon the expiration or sooner termination of the 401 Lease for any reason, including as a result of a casualty to or condemnation of all or any part of the 401 Premises, if one or both of the Openings have been constructed, Tenant shall close up such Opening(s) in accordance with the provisions of Section 38.01(b). From and after the date on which Tenant commences construction of an Opening, a default by Tenant beyond applicable notice and cure periods under the 401 Lease shall give Landlord, upon ten (10) days' notice to Tenant, the right to require Tenant to close up such Opening(s) in accordance with the provisions of Section 38.01(b). (c) Tenant acknowledges and agrees that Landlord shall have the right, from and after the commencement of construction of any Opening, to enter upon the 401 Premises in order to inspect the construction and/or the restoration of any Opening, and to insure that neither the Demised Premises nor the Building is being adversely affected by the use by Tenant of the Opening. (d) Nothing contained herein shall be deemed to grant to Tenant or any other occupant of the Demised Premises or the 401 Premises an easement or other real property interest in, on or over an Opening constructed pursuant to the provisions of this Article. The rights granted to Tenant pursuant to this Article 38 constitute a mere license to construct the Openings in accordance with the terms hereof and to use the same as a means of ingress and egress to and from the 401 Premises from and to the Demised Premises, which license shall be revocable by Landlord at any time. Notwithstanding the foregoing, Landlord agrees that, for so long as no default shall have occurred and be continuing under this Lease or the 401 Lease, and for so long as the construction and use of the Opening(s) are not contrary to any applicable Requirements, Landlord shall not revoke the license granted to Tenant hereby. -57- IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of the day and year first above written. 387 P.A.S. ENTERPRISES By: Twenty-Seventh and Park, Inc., a General Partner By:_____________________________________ John Fletcher, Vice President HEALTH MANAGEMENT SYSTEMS, INC. By:_____________________________________ Name: Title: -58- STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On this ___ day of March, 1996, before me personally came John Fletcher, to me known, who being by me duly sworn, did depose and say that he resides at 641 Lexington Avenue, New York, New York; that he is the Vice President of TWENTY-SEVENTH AND PARK, INC., a General Partner of 387 P.A.S. ENTERPRISES, the partnership described in and that, by said corporation, executed the within instrument as a general partner; and that he signed his name thereto by order of the Board of Directors of such corporation and on behalf of the partnership. ------------------------------ Notary Public STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On this ___ day of March, 1996, before me personally came _____________, to me known, who being by me duly sworn, did depose and say that he resides at ________________________; that he is the _______________ of HEALTH MANAGEMENT SYSTEMS, INC., the corporation described in and that executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of such corporation. ------------------------------ Notary Public -59- Exhibit A DESCRIPTION ALL that certain lot, piece or parcel of land, situate, lying and being in the Borough of Manhattan, City, County and State of New York, bounded and described as follows: BEGINNING at the corner formed by the intersection of the northerly side of 27th Street with the easterly side of Fourth Avenue: Running THENCE northerly, along the easterly side of Fourth Avenue, 98 feet 9 inches to the centre line of the block between 27th and 28th Streets; THENCE easterly, along said centre line 166 feet 8 inches; THENCE southerly, parallel with Fourth Avenue, 98 feet 9 inches to the northerly side of 27th Street; THENCE westerly, along the northerly side of 27th Street, 166 feet 8 inches to the point or place of BEGINNING. Fourth Avenue above is now known as Park Avenue South. Exhibit B WORKLETTER 1. Commencing on the Commencement Date, Landlord shall perform the following work ("Landlord's Work") in the Demised Premises: A. Demolition of existing interior installation in accordance with the Plans and as directed by Tenant. B. Landlord shall remove from the Third Floor Premises the stairway connecting the second floor and restore the floor of the third floor to a floor load level equal to or greater than the presently existing floor load on the third floor. C. Tenant shall perform Tenant's Work in accordance with the Plans to be submitted by Tenant to Landlord in accordance with this Exhibit B. D. Landlord shall deliver to Tenant five (5) copies of an ACP-5 for the Third Floor Premises on or before the Commencement Date and five (5) copies of an ACP-5 for the Fourth Floor Premises on or before the Fourth Floor Delivery Date. 2. Tenant shall submit to Landlord for Landlord's approval (which approval shall not be unreasonably withheld), on or before March 15, 1996, complete architectural and engineering drawings and specifications (hereinafter, as the same may be revised from time to time, the "Plans") showing the proposed subdivision, layout and finish of the Demised Premises, including the proposed Openings connecting (a) the third (3rd) floor of the Demised Premises to the third floor of the 401 Premises and (b) the fourth (4th) floor of the Demised Premises to the fourth (4th) floor of 401 Premises, which Plans shall be consistent with the design, construction and equipment of the Building and in conformity with its standards, all in such form and detail as may be reasonably required by Landlord. The Plans shall be prepared by an architect reasonably satisfactory to Landlord who shall be engaged by Tenant and who, at Tenant's expense, shall assist Tenant in securing such approvals which, because of the nature of the work shown on the Plans, may be required by the Department of Buildings of the City of New York and any other governmental authority. 3. If Landlord shall not approve the Plans as submitted by Tenant, Landlord shall notify Tenant thereof, and of the particulars of such revisions as are reasonably required by Landlord for the purpose of obtaining its approval, within seven (7) days of receipt of the Plans and, within seven (7) days after being so informed by Landlord, Tenant shall submit to Landlord, for Landlord's approval (which approval shall not be unreasonably withheld), revised Plans, incorporating such revisions or incorporating such modifications as are suggested by Tenant and approved by Landlord. Any such approval by Landlord shall not be deemed to be a representation or warranty that the same is properly designed to perform the function for which it is intended or complies with any applicable law, ordinance, rule, order or regulation of any governmental authority or insurance body, but only that the work required thereby will not interfere with the Building Systems and is compatible with the design and structure of the Building. 4. Upon final approval of the Plans, Landlord, through Landlord's contractor or contractors, shall proceed with due diligence, subject to delay for causes beyond its reasonable control and Tenant Delays to perform Landlord's Work during regular working hours. 5. If Landlord shall be delayed in substantially completing Landlord's Work as a result of any act, neglect, failure or omission of Tenant, its agents, servants, architects, or employees, including without limitation any of the following, such delay shall be deemed to be a "Tenant Delay": (a) Tenant's failure to furnish the Plans in accordance with Paragraphs 2 and 3 of this Exhibit B; or (b) Tenant's changes in or substitutions to the Plans, the number of days of such delay to be determined by the contractor, upon request therefor by Tenant, and communicated in advance of such change or substitution to Landlord in writing, but if such determination by the contractor with respect to the delay caused by such change or substitution is not submitted to Landlord in advance of commencement of construction of same, the resulting delay, if any, shall be determined by Landlord; or (c) the performance or delays in completion of work by a person, firm or corporation employed by Tenant. Failure by Landlord to obtain any certification required by Local Law No. 76 of the City of New York, Laws of 1985, and the regulations pertaining thereto, with respect to the presence or absence of asbestos in the Demised Premises shall not be a Tenant Delay. 6. There shall be no charge to Tenant for use of the freight elevator in the Building during the performance of Landlord's Work or for Tenant's move-in at the commencement of the term of this Lease, provided Tenant's move-in occurs during Regular Hours of Business Days, as set forth in Section 16.02 hereof. 7. Landlord shall permit Tenant and its agents to enter upon the Demised Premises prior to the completion of Landlord's Work in order that Tenant may perform through its architect and contractors such other work for installation and decoration which Tenant may desire at the same time as Landlord's contractors are working therein, but only at such time or times as Landlord shall reasonably deem feasible in the circumstances. This right to enter before completion of Landlord's Work is conditioned upon Tenant's architect, workmen, mechanics, and contractors working in harmony and without interference with the workmen, mechanics and contractors of Landlord and in accordance with applicable insurance requirements. In case disharmony or interference occurs, or insurance requirements are violated, this right may be temporarily revoked by Landlord upon twenty-four (24) hours' written notice to Tenant. Exhibit C RULES AND REGULATIONS 1. The rights of tenants in the entrances, corridors and elevators of the Building are limited to ingress to and egress from the tenants' premises for the tenants and their employees, licensees and invitees, and no tenant shall use, or permit the use of, the entrances, corridors, or elevators for any other purpose. No tenant shall invite to the tenant's premises, or permit the visit of, persons in such numbers or under such conditions as to interfere with the use and enjoyment of any of the entrances, corridors, elevators and other facilities of the Building by other tenants. Fire exits and stairways are for emergency use only, and they shall not be used for any other purpose by the tenants, their employees, licensees, or invitees. No tenant shall encumber or obstruct, or permit the encumbrance or obstruction of, any of the sidewalks, entrances, corridors, elevators, fire exits or stairways of the Building. Landlord reserves the right to control and operate the public portions of the Building and the public facilities, as well as facilities furnished for the common use of the tenants, in such manner as it deems best for the benefit of the tenants generally. 2. Landlord may refuse admission to the Building, outside of ordinary business hours, to any person not known to the watchman in charge, not having a pass issued by the Landlord or the tenant whose premises are to be entered, or not otherwise properly identi-fied, and may require all persons admitted to or leaving the Building outside of ordinary business hours to register. Any person whose presence in the Building at any time shall, in the judgment of Landlord, be prejudicial to the safety, character, reputation and interests of the Building or of its tenants may be denied access to the Building or may be ejected therefrom. In case of invasion, riot, public excitement, or other commotion, Landlord may prevent all access to the Building during the continuance of the same, by closing the doors or otherwise, for the safety of the tenants and protection of property in the Building. Landlord may require any person leaving the Building with any package or other object to exhibit a pass from the tenant from whose premises the package or object is being removed, but the establishment and enforcement of such requirement shall not impose any responsibility on the Landlord for the protection of any tenant against the removal of property from the premises of the tenant. Landlord shall, in no way, be liable to any tenant for damages or loss arising from the admission, exclusion, or ejec-tion of any person to or from the tenant's premises or the Building under the provisions of this rule. Canvassing, soliciting or peddling in the Building is prohibited, and every tenant shall cooperate to prevent the same. 3. No tenant shall obtain, or accept for use in its premises, ice, drinking water, food, beverage, towel, barbering, boot blacking, floor polishing, lighting maintenance, cleaning or other similar services from any persons reasonably disapproved by Landlord in writing. Such services shall be furnished only at such hours, in such places within the tenant's premises and under such reasonable regulations as may be fixed by Landlord. 4. The cost of repairing any damage to the public portions of the Building or the public facilities or to any facilities used in common with other tenants, caused by a tenant, or the employees, licensees, or invitees of a tenant, shall be paid by such tenant. 5. No lettering, sign, advertisement, notice, or object shall be displayed in or on the windows or doors, or on the outside of any tenant's premises, or at any point inside any tenant's premises where the same might be visible outside of such premises, except that the name of the tenant may be displayed on the entrance door of the tenant's premises, and in the elevator lobbies of the floors which are occupied entirely by such tenant, subject to the approval of Landlord as to the size, color and style of such display, such approval not to be unreasonably withheld. The inscription of the name of the tenant on the door of the tenant's premises shall be done by Landlord at the expense of the tenant. Listing of the name of the tenant on the directory board in the Building shall be done by Landlord at its expense; any other listings shall be in the discretion of Landlord. 6. No awnings or other projections over or around the windows shall be installed by any tenant, and only such window blinds as are supplied or permitted by Landlord shall be used in a tenant's premises. Linoleum, tile, or other floor covering shall be laid in a tenant's premises only in a manner approved by Landlord. 7. Landlord shall have the right, not to be unreasonably exercised, to prescribe the weight and position of safes and other objects of excessive weight, and no safe or other object whose weight exceeds the lawful load for the area upon which it would stand shall be brought into or kept upon a tenant's premises. If, in the judgment of Landlord, it is necessary to distribute the concentrated weight of any heavy object, the work involved in such distribution shall be done at the expense of the tenant and in such manner as Landlord shall determine. The moving of safes and other heavy objects shall take place only outside of ordinary business hours upon previous notice to Landlord, and the persons employed to move the same in and out of the Building shall be reasonably acceptable to Landlord and, if so required by law, shall hold a Master Rigger's license. Freight, furniture, business equipment, merchandise and bulky matter of any description shall be delivered to and removed from the premises only in the freight elevators and through the service entrances and corridors, and only during hours and in a manner approved by Landlord. Arrangements will be made by landlord with any tenant for moving large quantities of furniture and equipment into or out of the Building. 8. No machines or mechanical equipment of any kind, other than typewriters and other ordinary portable business machines, may be installed or operated in any tenant's premises without Landlord's prior written consent, such consent not to be unreasonably withheld, and in no case (even where the same are of a type so excepted or as so consented to by landlord) shall any machines or mechanical equipment be so placed or operated as to disturb other tenants, but machines and mechanical equipment that may be permitted to be installed and used in a tenant's premises shall be so equipped, installed and maintained by such tenant as to prevent any disturbing noise, vibration, or electrical or other interference from being transmitted from such premises to any other area of the Building. 9. No noise, including the playing of any musical instruments, radio or television, that, in the judgment of Landlord, might disturb other tenants in the Building, shall be made or permitted by any tenant, and no cooking, except for microwave ovens and coffee units, shall be done in the tenant's premises, except as expressly approved by Landlord. Nothing shall be done or permitted in any tenant's premises, and nothing shall be brought into or kept in any tenant's premises, that would materially impair or interfere with any of the Building services or the proper and economic heating, cleaning, or other servicing of the Building or the premises, or the use or enjoyment by any other tenant of any other premises, nor shall there be installed by any tenant any ventilating, air conditioning, electrical, or other equipment of any kind that, in the reasonable judgment of Landlord, might cause any such impairment or interference. No dangerous, inflammable, combustible, or explosive object or material shall be brought into the Building by any tenant or with the permission of any tenant. Any cuspidors or similar containers or receptacles used in any tenant's premises shall be cared for and cleaned by and at the expense of the tenant. 10. No acids, vapors or other materials shall be discharged, or permitted to be discharged, into the waste lines, vents, or flues of the Building if the same may damage them. The water and wash closets and other plumbing fixtures in or serving any tenant's premises shall not be used for any purpose other than the purposes for which they were designed or constructed, and no sweepings, rubbish, rags, acids, or other foreign substances shall be deposited therein. 11. No additional locks or bolts of any kind shall be placed upon any of the doors or windows in any tenant's premises, and no lock on any door therein shall be changed or altered in any respect, except upon the prior written approval of Landlord, such approval not to be unreasonably withheld. Additional keys for a tenant's premises and toilet rooms shall be procured only from Landlord, and a reasonable charge may be levied therefor. Upon the termination of a tenant's lease, all keys of the tenant's premises and toilet rooms shall be delivered to Landlord. 12. All entrance doors in each tenant's premises shall be left locked, and all windows shall be left closed by the tenant, when the tenant's premises are not in use. Entrance doors shall not be left open at any time. 13. Hand trucks not equipped with rubber tires and side guards shall not be used within the Building. 14. All windows in each tenant's premises shall be kept closed, and all blinds therein, if any, above the ground floor shall be lowered when and as reasonably required because of the position of the sun, during the operation of the Building air-conditioning system to cool or ventilate the tenant's premises. 15. Landlord reserves the right to rescind, alter or waive any rule or regulation at any time prescribed for the Building when, in its judgment, it deems it necessary, desirable, or proper for its best interest and for the best interests of the tenants, and no alteration or waiver of any rule or regulation in favor of one tenant shall operate as an alteration or waiver in favor of any other tenant. Landlord shall not be responsible to any tenant for the non-observance or violation by any other tenant of any of the rules and regulations at any time prescribed for the Building. DEFINITIONS "401 Building" has the meaning assigned in Section 38.01. "401 Ground Lessor" has the meaning assigned in Section 38.01. "401 Landlord" has the meaning assigned in Section 38.01. "401 Lease" has the meaning assigned in Section 38.01. "Additional Rent" has the meaning assigned in Section 1.04. "After Hours Service" has the meaning assigned in Section 16.02. "Base Rent" has the meaning assigned in Section 1.04. "Base Tax Year" has the meaning assigned in Section 5.01. "Building" has the meaning assigned in Section 1.01. "Building Systems" means the mechanical, electrical (to the point of the junction box within the Demised Premises), sanitary, heating, elevator, plumbing, life-safety and other service systems of the Building. "Business Days" has the meaning assigned in Section 16.02. "Changes" has the meaning assigned in Section 12.01. "Commencement Date" has the meaning assigned in Section 1.03. "Control" or "control" means ownership of more than thirty-nine percent (39%) of the outstanding voting stock of a corporation or other majority equity and control interest if not a corporation and the possession of power to direct or cause the direction of the management and policy of such corporation or other entity, whether through the ownership of voting securities, by statute or according to the provisions of a contract. "Date of Taking" has the meaning assigned in Section 22.01. "Deficiency" has the meaning assigned in Section 25.02. "Demised Premises" has the meaning assigned in Section 1.02. "Event of Default" has the meaning assigned in Section 24.02. "Existing Mortgage" has the meaning assigned in Section 6.01. "Expiration Date" has the meaning assigned in Section 1.03. "Fixed Expiration Date" has the meaning assigned in Section 1.03. "Fourth Floor Delivery Date" has the meaning assigned in Section 1.03. "Fourth Floor Premises" has the meaning assigned in Section 1.02. "Governmental Authority (Authorities)" has the meaning assigned in Section 9.01. "HV Service" has the meaning assigned in Section 16.02. "Indemnitees" has the meaning assigned in Section 20.01. "Initial Period" has the meaning assigned in Section 1.05. "Land" has the meaning assigned in Section 1.01. "Landlord's Work" has the meaning assigned in Section 3.01. "Lease" has the meaning assigned in the preamble. "Leaseback Space" has the meaning assigned in Section 8.02. "Lessor" has the meaning assigned in Section 6.01. "Non-Disturbance Agreement" has the meaning assigned in Section 6.04. "Opening" has the meaning assigned in Section 38.01. "Other Mortgages" has the meaning assigned in Section 6.01. "Outside Date" has the meaning assigned in Section 4.02. "Person(s) or person(s)" means any natural person or persons, a partnership, a corporation and any other form of business or legal association or entity. "Regular Hours" has the meaning assigned in Section 16.02. "Renewal Term Commencement Date" has the meaning assigned in Section 37.01. "Renewal Term" has the meaning assigned in Section 37.01. "Rental" has the meaning assigned in Section 1.04. "Rent Commencement Date" has the meaning assigned in Section 1.05. "Requirements" has the meaning assigned in Section 9.01. "Revised Rent Notice" has the meaning assigned in Section 37.02. "Successor Landlord" has the meaning assigned in Section 6.03. "Superior Leases" has the meaning assigned in Section 6.01. "Superior Lessor" has the meaning assigned in Section 6.01. "Superior Mortgages" has the meaning assigned in Section 6.01. "Superior Mortgagee" has the meaning assigned in Section 6.01. "Tax Statement" has the meaning assigned in Section 5.02. "Tax Year" has the meaning assigned in Section 5.01. "Taxes" has the meaning assigned in Section 5.01. "Temporary Taking" has the meaning assigned in Section 22.04. "Temporary Taking Termination Date" has the meaning assigned in Section 22.04. "Tenant Fund" has the meaning assigned in Section 12.05. "Tenant Fund Balance" has the meaning assigned in Section 12.05. "Tenant's Monthly Share of Tax Increase" has the meaning assigned in Section 5.01. "Tenant's Property" has the meaning assigned in Section 13.02. "Tenant's Proportionate Share of Tax Increase" has the meaning assigned in Section 5.01. "Tenant's Proportionate Share" has the meaning assigned in Section 5.01. "Tenant's Work" has the meaning assigned in Section 3.01. "Term" has the meaning assigned in Section 1.03. "Termination Notice" has the meaning assigned in Section 4.02. "Third Floor Premises" has the meaning assigned in Section 1.02. "Units" has the meaning assigned in Section 16.03.
EX-11 5 COMPUTATION OF EARNINGS PER SHARE HEALTH MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES EXHIBIT 11--Computations of Earnings Per Share (In Thousands, Except Per Share Amounts) Three months Nine months ended July 31, ended July 31, ------------------ ----------------- 1996 1995 1996 1995 ------- ------ ------ ------ Primary Earnings Per Share: Earnings data: Net (loss) income $(1,827) 2,413 5,254 6,637 ======= ====== ====== ====== Weighted average shares outstanding: Average shares of common stock outstanding 17,193 16,318 16,806 16,227 Net effect of dilutive stock options--based on the treasury stock method using average market price -- 1,220 1,390 1,095 ------- ------ ------ ------ Weighted average shares outstanding 17,193 17,538 18,276 17,322 ======= ====== ====== ====== Earnings per common share: Net (loss) income $(0.11) 0.14 0.29 0.38 ====== ==== ==== ==== EX-27 6 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheets at July 31, 1996 (unaudited) and 1995 (unaudited) and the Consolidated Statement of Operations for the nine months ended July 31, 1996 (unaudited) and 1995 (unaudited) and is qualified in its entirety by reference to such financial statements. 0000861179 Health Management Systems, Inc. 1,000 9-MOS 9-MOS OCT-31-1996 OCT-31-1995 NOV-01-1995 NOV-01-1994 JUL-31-1996 JUL-31-1995 12,013 10,069 18,041 16,985 47,400 29,857 (3,452) (286) 0 0 87,105 59,071 18,445 14,515 (11,188) (8,739) 108,793 79,451 31,277 19,418 0 0 0 0 0 0 173 110 72,654 55,350 108,793 79,451 76,752 65,046 76,752 65,046 67,565 52,009 0 0 0 0 3,219 373 0 0 8,463 12,477 3,209 5,840 9,026 12,848 0 0 0 0 0 0 5,254 6,637 0.29 0.38 0.29 0.38
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